Israeli Parliamentary Committee Approves $2.4 Billion Tax Cut Bill

by Lorys Charalambous, Tax-News.com, Cyprus

25 July 2005

The Knesset Finance Committee has approved Finance Minister Benjamin Netanyahu's NIS11 billion (US$2.4 billion) package of tax reforms, which are designed to reduce the tax burden on business and boost investment while expanding the tax base and reducing tax evasion.

The key elements of the tax reform bill include: a reduction in corporate income tax to 25% from 35% and a cut in the top rate of individual income tax to 44% from 49% starting in 2006; a cut in value added tax to 16.5% from 17% from September 2005; and an increase in capital gains tax to 20% from 15% beginning in 2006.

The bill also grants exemption from purchase tax on homes up to NIS550,000 in value by a temporary order to be in effect from July 1, 2005, until the end of 2007.

In addition, the committee approved the following amendments: a cut in the land betterment tax to 20% from 25% from 2008 instead of 2010; a reduction in the vesting period before employee options deposited with a trustee are eligible for tax breaks to 24 months from 30 months; and an increase in the tax exemption on pensioners' savings income to NIS7,800 for individuals and NIS11,700 for couples.

"Every Israeli citizen will spend less on taxes already in the near future, particularly in the weak and middle [socioeconomic] strata, while all cracks allowing large-scale tax evasion will be plugged," Netanyahu noted.

The bill, which was approved by the committee in a 12-4 vote split along party lines, now heads for its second and third readings in parliament.

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