From January 2003, all banks will be bound to report any share transactions of their customers to the tax authorities. This week's latest amendment from the Knesset Finance Committee joins the other recently passed amendments to the tax reforms, which are still being fine tuned and amended barely two weeks before they are scheduled to come into practice. The reforms were approved by the Knesset plenum before the summer recess.
Last week, the committee approved the regulation that banks will be bound to report to the tax authorities any client who earns NIS 12,000 or more in interest during any one year.
The duty to report on share dealings, obliges the banks to report on any transaction in securities, whether the trade is liable for tax or not. Trading in makam notes (short term debt certificates), for example, will be tax-exempt after January 2003, but will have to be reported to the tax authority.
Similarly any trading in mutual funds through a bank will have to be reported by the bank.
Freddy Wieder of the Banking Association said that the new regulation was revolutionary, unconnected to the tax reform and not simply a technical matter as portrayed by the Income Tax Commission. Wieder attacked the banks' new duty to report on share dealing as an affront to banking confidentiality, which should therefore be an issue of wider public debate.
Before the new amendment was passed, the Banking Association had sent a letter to Shalom calling on him to cancel their duty to report on interest payments, also on the grounds that it infringed on banking confidentiality. The banks threatened to take the matter to the High Court if their demand was not met. Wieder added that this latest decision to extend the banks' duty to report on all share dealings would also be covered by the association's letter to the minister.
Many of the tax reforms follow the recommendations of the Rabinovich committee, which was set up by Finance Minister Silvan Shalom. From January 2003, Israel will pass from a geographical taxation regime to a personal regime. In addition, new taxes will be imposed on unearned income - savings, interest, dividends and securities dealings - but many of the changes remain unclear.
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