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The Finance Ministry is likely to cancel income tax cuts scheduled for this year for taxpayers grossing more than NIS 14,000 a month. The move would pay for the cut in fuel tax agreed to by Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz. The NIS 23 agorot-per-liter increase in fuel tax took effect January 1 and was canceled this week. But note that The fuel tax increase scheduled for next January 1 was not canceled.

Income tax brackets were broadened as of January 1, 2011, though tax was not cut. The change in tax brackets is what the treasury will probably cancel to make up for most of the lost tax revenues.

Broadening tax brackets means that the previous tax rates stay the same but kick in at a higher income. For example, if workers paid 10% tax on income up to NIS 4,771 in 2010 and 14% over that amount, the 10% bracket was raised to all those earning less than NIS 5,071 a month on January 1, 2011.

The 30% tax bracket started last year at monthly income of NIS 12,721 and rose this year to start at NIS 14,071. This is the change the treasury plans to cancel. The brackets will revert to last year's - for those earning NIS 14,071 a month.

Corporate tax dropped on January 1 from 25% to 24%. The treasury is not expected to change this retroactively.

Tweaking tax brackets will not fully cover the fuel tax cut, but the treasury expects higher tax revenues from other sources this year to make up the difference. For example, real estate purchase taxes rose this year and the treasury expects higher revenues from taxing Israel's oil and natural gas sector after implementing the Sheshinski Committee's recommendations to raise tax on natural resources.

The additional NIS 300 million subsidy for public transportation promised by Netanyahu and Steinitz will probably come from reserves in the present budget, not higher taxes.