The Bottom Line / New investors law, same old loophole
The Israel Manufacturers Association is like a pharmacist. Association president Oded Tyrah says that the new law to encourage capital investment significantly shrinks the package of investor benefits, which will drive down investments in Israel.
The Israel Manufacturers Association is like a pharmacist. Association president Oded Tyrah says that the new law to encourage capital investment significantly shrinks the package of investor benefits, which will drive down investments in Israel. Who wants to discourage investments?
The new law grew out of the current one explicitly designed to encourage investment in the periphery. In practice, the law as is only enriches tycoons, insiders, and the crooks who raid state coffers at the expense of the public.
The current law provides two methods of support: a grant track and tax-free track. The grant track makes it worthwhile to purchase as much machinery and equipment as possible at the cost of downsizing staff. Such is the way to encourage employment - in Chelm.
The tax-free track barely helps the periphery because proper planning can allow one to pay very little tax in the center as well. Therefore, we hardly see profitable high-tech factories in the periphery. Once again, welcome to Chelm.
Some Negev factories manage to squeeze the maximum out of the government before entering crisis mode, closing time after time.
These twisted results brought the treasury and the Ministry of Trade and Industry to agree upon a new investment law. The major change in the new law is that the basic criterion to qualify will be the export of at least 25 percent of output. This criterion will discourage building failing factories in the periphery, because it will oblige establishing a factory capable of competing abroad.
The second significant change involves tax benefits. Until now, the center for investments distributed money according to vague, inconsistent "internal guidelines." This situation benefited the bigwigs and the insiders, but overall investment declined due to complex and unclear bureaucracy. The new law clarifies the tax-free track. No longer needing to convince investment center clerks, just to export 25 percent, and factories will be able to gain tax-free status directly from the tax authorities.
However, the likes of Dan Propper, Ofra Strauss, and Arik Raichman need not worry. The spigot has apparently closed for these people who do not export 25 percent of their output. Yet, Daddy Warbucks hasn't skipped town. The treasury only completed half the job and failed to close all the loopholes. The treasury allowed the ministry to provide an additional track called the "employment track." This track will provide a 20 percent government subsidy for employee salaries in peripheral factories using the old method of distribution, which did not increase employment but did line the pockets of the captains of industry.
It seems like nothing will turn out right for us as it should, preventing us from becoming a part of the Western world. No one could pull off a trick like this in the European Union anymore, but it's still business as usual in the Third World.
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