"The tax system in Israel suffers from flaws that create the potential for corruption, pressures and threats," a new report by the Macro Center for Political Economics charges.

"Tax offenders are able to negotiate plea bargain arrangements with the Tax Authority to avoid indictment, making tax evasion more worthwhile. Moreover, assessing officers' field of discretion is too wide, and secret information is leaked too often."

The report, compiled by the center's director Roby Nathanson, a former chief economist of the Histadrut labor federation, and Yoram Gabai, former Commissioner of State Revenue, refers to the recent affair of alleged corruption and improper appointments at the Tax Authority, which has caused upheaval in the organization.

According to Gabai and Nathanson, tenures of the two most recent Tax Authority directors are considered to be the heyday of the tax system. Collection increased, the Tax Authority successfully completed the merging of departments and went on to implement taxation on capital profits, a project that in the past had been considered difficult to implement.

Former Tax Authority director general Eitan Rub put the taxpayer in focus as a customer, and designated personal goals for Tax Authority employees.

Jacky Matza,who served as director general during the past year, took action to reduce unreasonable tax planning.

At the same time, the two researchers say the tax system has weaknesses that damage its status and image, and these are a result, among other things, of insufficient rotation between assessing officers, overly close public and business relations between assessing officers and the business community, and the lack of a 'cooling-off' period of at least two years between employment in the Tax Authority and representation of companies and private businessmen before the Tax Authority.

Gabai and Nathanson suggest establishing a tax tribunal to be presided over by judges adequately skilled to deal with tax criminals' sophisticated attorneys; to base the tax system on simplified, clear legislation which minimizes the number of extraordinary cases; and to approve information-sharing between various tax departments and other organizations such as the National Insurance Institute, banks, the Vehicle Licensing Bureau and the Land Registry Office.

They also called for drastically reducing the use of plea bargain deals, which they argue would limit the advantages of tax evasion. The two also suggest that every meeting between a Tax Authority employee and a citizen or representative of a company be recorded, or at least transcribed, to increase transparency and regulation.