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Rabbi Ovadia Yosef, who heads Shas's Council of Torah Sages, is adamantly against levying Value Added Tax on fruits and vegetables, and warns that Shas may even withdraw from the government coalition if the finance ministry insists on pushing the bill through.

Nevertheless, coalition members say that they believe that after only three months in the current government, Shas won't withdraw in the end, and Yosef's threat was meant primarily to pressure the government into legislating alternative benefits to poorer population sectors to offset the looming tax.

Shas is at the forefront of the battle against VAT on fruits and vegetables. Shas's representative on the Knesset Finance Committee Yitzhak Vaknin told the committee yesterday that he will "oppose the tax with his body and soul, and I won't be ousted from the Finance Committee."

Finance Committee and coalition members have been lobbying Shas's support for VAT on fruits and vegetables despite of Yosef's threat.

Top coalition party members have been trying to convince Shas to support the levy in exchange for allocating hundreds of millions of shekels to poorer regional councils, in addition to NIS 300 million in compensation to poor sectors that will be hit hard by the tax.

"Interior Minister Eli Yishai and Housing and Construction Minister Ariel Atias, both of Shas, have to understand that if the VAT is not levied there will be no money available for local authorities, housing or other welfare needs," a senior coalition member said yesterday.

Finance Minister Yuval Steinitz will try to enlist Shas support early next week, in advance of the Finance Committee vote scheduled for next Wednesday.

There is sweeping objection to the tax within the Finance Committee, which is suggesting instead to delay tax cuts planned for 2010. A proposal along these lines has been suggested by the committee's chairman Moshe Gafni of United Torah Judaism, and other Knesset members from a spectrum of parties, including Miri Regev (Likud), Haim Oron (New Movement-Meretz) and Shelly Yachimovich (Labor).

MK Meir Sheetrit of Kadima announced that he would ensure his party's support of the budget if the proposal for VAT on fruits and vegetables is canceled along with delaying the planned tax cuts.

Yisrael Beiteinu has also threatened to vote against the budget if the finance ministry insists on pushing the bill.