Senior officials from the Defense Ministry met with their counterparts from the Finance and Interior Ministries last week, and proposed new legislation that would allow them to transfer the NIS 330 million a year they owe in property taxes directly to the state, instead of local authorities.

The Defense Ministry is worried that localities will overcharge them, TheMarker has learned.

The ministry is preparing to do battle with the local authorities over their rapidly growing debts, which today stands at NIS 676 million, but is estimated to be actually NIS 2 billion higher.

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In 1995 the Defense Ministry was forced to start paying property taxes and fees to the local authorities and cities for the various properties it owned. In 2004, for example, the ministry paid taxes of NIS 280 million for 470 bases and installations to 94 different authorities - most of which are in use by the IDF.

The professionalization of the local authorities with respect to property tax collections, as well as updated surveying of property affected the Defense Ministry too. As a result, the ministry was asked to pay NIS 330 million in 2005.

The ministry was up in arms over what it claimed was overcharging by the authorities, including high tax rates for runways, or the classification of IDF dining halls under the rate category of restaurants.

The ministry quickly reached the conclusion that instead of higher outside consultants and lawyers to fight each case individually, the correct solution was to bring the appropriate government ministries into the matter; in this case, the Finance and Interior Ministries.

As part of its tactics, the ministry brought in reinforcements from poor authorities in the periphery, which it claims are discriminated against as the wealthy localities collect the lion's share of the property tax payments from the Defense Ministry.

The officials presented their counterparts with examples of the injustice in the allocation of the taxes, and said the money should go to those in need. Therefore, they presented an innovative and creative plan: "Change the law so that the property taxes will go directly to the state coffers - and we will reach an agreement over a fixed annual payment to come from the Defense Ministry budget."

The treasury did not reject the offer out of hand, and said that it will examine the proposal.

In any case, the ministry expects the treasury will have to deal with an even more difficult problem presented by the ministry - paying for the local authorities' demands for additional fees and charges.

In addition to the regular property taxes, the Defense Ministry is required to pay local authorities various fees and one-time charges for development and various ongoing services they supply.

Examples include water and sewage fees, and charges for paving roads and sidewalks.

The State Comptroller's 2005 report on local government stated the Defense Ministry refused to pay its debts, and in a sample examination of 20 localities, the comptroller found that the total amount of outstanding debt numbered over NIS 550 million.

The comptroller called on the ministry to quickly formulate a clear policy on such payments, before local authorities decided to file lawsuits over the sums against the ministry.

A number of such suits were filed last year, and the ministry received instructions to avoid any decision on the cases - and to find a way to solve the matter through out of court compromises.

The ministry owes NIS 676 million to only half of the authorities that host defense installations - and the ministry estimates that the total could reach more than NIS 2.6 billion, TheMarker has learned.

"If the dam bursts," said a Defense Ministry source, "it is clear that we cannot afford to pay, and the problem in any case will be passed on to the treasury.