Israeli Kibbutz Members to Pay Income Tax for First Time Ever

A Knesset committee approves the historic reform after four months of negotiations with the movement.

Kibbutz members eating at the dining room of Sha'ar Ha'amakim, where the talk of the town is Bernie Sanders.
Rami Shllush

Kibbutz members will start paying tax on their individual incomes as well as National Insurance social security for the first time ever, after a special Knesset committee Thursday approved the proposals following months of talks between the government and the Kibbutz Movement.

The Knesset Special Committee on Distributive Justice and Equality approved the measure unanimously; it will now be part of the Economic Arrangements Law, where it will be voted on by the full Knesset later this month.

Members of kibbutzim will begin paying tax on their individual incomes – as against on the combined income of the kibbutz and all its members – starting January 1 and begin contributing to the social security system (bituach leumi) starting July 1. All told, the government should collect an extra 420 million shekels ($109 million) in the first year, according to treasury estimates.

“The aim of the law isn’t to hurt the kibbutzim or the value of collectivism, but to achieve more equitable taxation of Israel’s citizens,” said Miki Zohar (Likud), the Knesset committee’s chairman. “The compromise we reached with the treasury doesn’t destroy the kibbutz ideal but enables a more equal distribution of the tax burden.”

Until now, the kibbutzim were treated as partnerships. Each kibbutz collected all salaries earned by members from outside work and kept part of it for things such as pensions and the kibbutz’s joint expenses. From what was left over, members were paid an amount agreed-on in advance and on that net figure members paid tax.

But with some 220 of the country’s 270 kibbutzim “privatized,” meaning families live in their own homes while many work outside the kibbutz often at very different salary levels, the treasury has looked askance at the “partnership” arrangements.

Still, the kibbutzim strongly protested the original legislation, which had called for a fundamental revision of the legal and organization structure of the kibbutz.

The bill would have taxed members’ income from work outside the kibbutz as well as their share of the kibbutz’s collective income as if it were passive income. This would have meant a much higher rate for members and denied them tax benefits if their kibbutz was located in areas entitled to tax benefits.

The treasury, the Israel Tax Authority and the Kibbutz Movement entered four months of talks; the condition was that no legislation would be passed on the matter unless all sides agreed.