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The Finance Ministry is forecasting a huge drop in tax revenue for 2009, and only a slight improvement in 2010. It now expects NIS 172.9 billion will be collected this year, and NIS 183.1 billion next year.

These figures are based on actual tax revenue through March, and mark a major reappraisal of the original forecasts.

Former prime minister Ehud Olmert's cabinet passed a budget proposal in August 2008 based on a projected NIS 202.7 billion in tax revenue this year - NIS 29.8 billion more than the new forecast.

In fact, at NIS 183.7 billion, total 2008 tax collections surpassed the current estimates for both this year and next year.

The treasury explains the steep drop in tax revenue is due to the economic slowdown and the world economic crisis.

The treasury's current estimates for this year and next are now based on economic growth of 1% in 2009 and 1.5% in 2010.

The drop in revenues has been across the board, with a fall in both direct taxes, such as income and land taxes, and in indirect taxes, such as VAT and customs. However, the proposed increase in VAT from 15.5% to 16.5% - and the levying of VAT on fruits and vegetables - is expected to make up some of the difference.

For the first time ever, indirect tax revenues in 2010 will be more than those from direct taxes, mostly due the planned VAT increases.

Tax breaks in 2009 will equal 20% of all tax revenues, some NIS 34.6 billion in this year's proposed budget, and 4.6% of GDP.