Moshe Gafni- Daniel Bar-On
Gafni at the meeting Sunday, Nov. 14, 2010. Photo by Daniel Bar-On
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The Knesset Finance Committee is expected to approve reforms that will increase tax breaks for companies in the periphery, with the notable exception of Israel Chemicals.

The reforms to the Law for the Encouragement of Capital Investment were drafted by the Finance Ministry, and the Industry and Trade Ministry. However, the Knesset committee wants to go a step further and raise corporate tax benefits for companies in outlying areas.

The big loser would be Israel Chemicals, which currently enjoys nearly half a billion shekels in tax breaks. Yesterday's committee session on the matter was attended by six lobbyists, most of whom represented ICL. In comparison, there were only seven MKs present.

The reform also calls for giving tax benefits to government defense companies in the periphery, such as Raphael Advanced Defense Systems and Israel Aerospace Industries; currently, they do not enjoy such benefits.

MK Zion Fanian said the committee would approve the bill if the corporate tax rate for companies in the areas under discussion were reduced to 4% or 5%, as opposed to the 8% that is currently proposed. Finance Minister Yuval Steinitz is said to oppose this.

The committee discussion largely focused on ICL, as committee chairman MK Moshe Gafni said it would.

Two MKs, Zevulun Orlev and Jacob Edrey, were clearly on ICL's side. For his part, Orlev said the proposal would "very seriously damage national strength in the Negev."

As it stands the bill would exclude ICL from the reduced corporate tax rate of 8% that would be granted to businesses in the Negev, starting in 2013. Approximately 400 small and medium-sized businesses in the outlying areas would enjoy the tax breaks. ICL, however, would have to pay the full corporate tax rate - 18% - starting in 2016. ICL has been granted tax benefits through 2018.

One lobbyist on ICL's behalf was Israel Manufacturers Association head Shraga Brosh. When asked by Gafni whether he would continue backing ICL's demands if the treasury were to say the reform will not pass unless the ICL is excluded from it, Brosh responded that while discriminating against ICL was not proper, he would have to go with what the treasury demanded.

ICL executive vice president Asher Grinbaum said ICL had offered a compromise: setting corporate tax rates at 9% in the periphery and 13% in the center of the country, instead of the proposed 8% and 12%, respectively, and giving the benefits to ICL, too. However, the treasury had rejected this idea.

Grinbaum said he learned ICL would be excluded from the benefits only from the media.