Knesset Approves Tax Reform Measures

by Robert Lee, Tax-News.com, London

26 July 2002

The Knesset on Wednesday passed a new tax reform package, due to come into effect in January 2003.

Under the new reforms, approved by a vote of 61 to 13 with 10 abstentions, Israelis will face a tax on capital gains and savings for the first time, a move which Finance Minister Silvan Shalom sees as crucial to the country's international progress:

'Israel is the only Western country where there is no capital gains tax,' he told reporters this week. 'This will now change and make us a modern country.'

As well as imposing a tax of up to 15% on stock market profits, the reform package also provides for the levying on a tax on savings deposit interest. However, it will also gradually reduce income tax rates from 2003 to 2008, bringing the highest tax marginal rate to 49% from 60%.

This news will be welcomed by wealthy Israelis after a recent Bank of Israel study found that the gap between the OECD average tax on labour and the Israeli rate had increased significantly since 1998. The report found that since 1998, 20 of the 26 OECD member states reduced taxes on labour. Israel, however, had raised them.

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