"Purchasing groups are taking over Tel Aviv," blared TheMarker on Wednesday. The story related that in 2008, "purchasing groups" had bought NIS 870 million worth of prime land in the city, while ordinary builders bought NIS 250 million worth.
It's hard to shed tears for the builders as they get elbowed out, especially as all the elbowers are doing is setting out to build themselves housing without paying a premium to the contractor. But they're not only saving on the bill to the builder: They're also saving on tax, and there's the rub.
When you buy housing through a purchasing group, you get two tax breaks. You don't pay VAT when buying the land, or naturally, on the builder's bill, since there isn't one.
You do have to pay sales tax when buying the land, but the second tax break is that you save yourself the cost of sales tax on the value of the finished apartment. In prime areas of central Tel Aviv, which is where the purchasing groups are clustering, the land can comprise half the total cost of the home. Ergo, buying through a purchasing group saves a lot of tax. The Tax Authority itself estimates: about a third.
Since in 2008, purchasing groups invested NIS 870 million in buying Tel Aviv land, they saved a vast amount. How vast? The Tax Authority wonders and is working it out, but roughly speaking - the state kitty lost hundreds of millions of shekels. And that's just in 2008. So the consumerism of the purchasing groups has two aspects: saving on a builder, and saving on tax. Which is a benefit entirely confined to the upper middle class and high class.
Make no mistake: Only people with money and knowhow get involved in purchasing groups. The adventure is not a simple one. There is a reason why towers going up in Tel Aviv are called "that tower of high-tech geeks" and "the pilots' tower." That's because only high-tech people, or high finance people, or sometimes defense establishment personnel, have the financial capacity and knowhow to build themselves apartments through purchasing groups.
Certainly, it takes a great deal of wealth to set about building oneself a luxury home in central Tel Aviv. But why on earth is the state giving tax breaks to people building themselves homes worth millions of shekels? What's the point?
There isn't one. It is simply a question of regressive tax policy. The rich, the people with knowhow, the people with capacity, are saving themselves pots of money on housing, at the expense of tax payments by the man in the street, who has neither the wherewithal or the smarts to participate in a purchasing group. The high-tech geeks and pilots and their ilk get to buy housing on the cheap, at the expense of Israel's tax revenues.
It is very hard to find any logic behind a tax policy like that. If the law does not allow purchasing groups to be taxed in full, then the law needs to be changed.
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