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Hundreds of people living in the north demonstrated yesterday against the treasury's planned tax reform, which would rescind certain tax breaks they receive. The protests started in Metulla and moved to Kiryat Shmona.

However, the treasury insists that its reform - though it would end tax breaks in eight communities - will actually benefit more people, and communities, than the present arrangement.

A treasury committee headed by Boaz Sofer, the Tax Authority senior deputy director for planning and economics, proposes to change the income tax benefits granted to residents of peripheral settlements in the north and south.

The committee proposes to grant 457 peripheral communities eligibility for income tax benefits, effective upon approval of the committee's findings, instead of the 167 which currently enjoy such benefits.

In practice, 120,000 residents of peripheral communities will enjoy the benefits, instead of the 80,000 that are now eligible, the treasury says.

The committee recommends that seven well-established settlements be removed from the list of communities eligible for tax benefits. These are Eilot, Kfar Vradim, Yehiam, Netiv Hashayara, Evron, Shavei Tsion and Sheikh Danon, which currently receive tax refunds of 13% on annual gross incomes of up to NIS 136,680. Those hurt by the reform include Mitzpe Ramon and Kiryat Shmona, which currently enjoy the highest tax benefit rate of 35%.

The committee proposes to grant residents of Mitzpe Ramon tax rebates of 7% on incomes of up to NIS 103,200, instead of NIS 136,680, and to Kiryat Shmona residents 10% on income of up to NIS 118,200, instead of NIS 205,080.

"The committee which I headed was appointed following an appeal to the Supreme Court, claiming that there are no existing objective criteria for tax benefits," Sofer said yesterday.

"The state accepted the claim. We decided to grant tax benefits to more communities, and to 50% more residents," he added.