Netanyahu Evades Decision on Income Tax Breaks to Arab and Druze Towns

Residents of 167 communities in the country's outskirts receive income tax benefits worth a total of NIS 700 million to NIS 750 million.

The government has until Tuesday to draft criteria to determine which communities are eligible for income tax benefits, after the High Court of Justice ruled that the current situation - whereby mostly Jewish communities are on the list - isn't kosher. But don't expect any decision to be forthcoming - instead, the government plans to pass the buck back to the court.

Kfar Vradim Nitzan Shorer
Nitzan Shorer

The decision not to decide was made by Prime Minister Benjamin Netanyahu and his office's director general, Eyal Gabai.

Currently, residents of 167 communities in the country's outskirts - some of them quite well off - receive income tax benefits worth a total of NIS 700 million to NIS 750 million.

Some non-Jewish communities are on the list, but most of the Arab towns near the country's borders are not, even though their Jewish neighbors are. Most of these Arab towns are quite poor.

Residents of communities on the list pay 13% to 25% less income tax than residents of other communities who earn comparable salaries.

The High Court ruled on September 15 in favor of petitions from several such communities, and gave the government until November 30 to draft new criteria for determining who makes the list, or to publish a new list entirely.

The court argued that the government was inconsistent in determining which towns should be on the list, and that its criteria were unclear and varied from town to town. The Prime Minister's Bureau, the Finance Ministry and the Tax Authority determine which towns are eligible for income tax breaks.

Shortly after that High Court decision, a finance official called it unconscionable for the court, and not politicians, to determine which towns make the list. If this were to happen, it would mean the government were forgoing a top tool of governance, the source said.

But another finance source told TheMarker over the weekend, "Updating the list of communities eligible for tax benefits, in accordance with objective criteria and without deviating from the current sum of benefits, is impossible in the current political atmosphere."

Some towns would be booted from the list, while others would have their benefits reduced, and none of the above would agree to this. "It won't pass the Knesset," he added.

"As far as we're concerned, it's better that the High Court cancel the whole thing, and then the game will begin from scratch."

Netanyahu and Finance Minister Yuval Steinitz have been under heavy pressure from town mayors who want to keep their constituents on the list, or want to get them included. Much of this pressure comes from members of the Likud Central Committee and party activists.

Communities on the list include Kiryat Shmona, Sderot, Mitzpeh Ramon Ofakim and Kfar Vradim. Many Arab and Druze towns in the north Galilee and the Golan are not on it.

The tax break program has existed for 15 years, and the criteria for acceptance were supposed to be socioeconomic status, distance from a border and distance from a major town. But over the years, finance ministers added other towns for political reasons, the Tax Authority claims.