Finance Minister Benjamin Netanyahu has approved a recommendation to cut the tax on foreign securities to that levied on Israeli securities from January 2004. Under a recommendation from the Income Tax office, capital gains tax on foreign stocks will be cut from 35 percent to 15 percent, bringing it in line with Israeli stocks. A bill has already been prepared for Knesset debate.

The Rabinovitz commission on tax reform had earlier recommended that the treatment of the securities be brought to parity by 2007, but the government later decided the changes should be brought forward to 2005, and now a year further.

Many feared cutting taxes on foreign securities would encourage a flood of investment capital to leave the country, attracted by the much lower taxes, but now this fear is much less pronounced with calm on the capital markets. This is particularly so in the Forex market, with a strong shekel, and the dollar no longer having the pull on investors it used to have, which has encouraged the treasury to agree to the reforms now.