AG Nixes Army Service as Criterion for VAT Break When Buying Home

Attorney General concerned for equality; most ultra-Orthodox Jews and Israeli Arabs don't do army service.

Olivier Fitoussi

All or some of the controversial criteria for dropping the value-added tax for people buying new homes may be scrapped after Attorney General Yehuda Weinstein said he could not vouch for the legality.

As a result, the housing cabinet’s decision this week to approve the exemption does not specify who is entitled to it.

The last-minute change is an embarrassment for Finance Minster Yair Lapid, who initiated and fought for the exemption despite a flurry of criticism.

Under Lapid’s plan, buyers of newly built homes would not have to pay the 18% tax if they have served in the army or done national civilian service and have at least one child. (The child clause would not apply to couples over 35.) The terms would  block most ultra-Orthodox Jews and Israeli Arabs, most of whom do not serve in the army.

A day before the housing cabinet was due to meet, Lapid defended his criteria in an interview with the Yedioth Ahronoth daily. “I have no plans to make any changes in the housing program,” he said, adding that all that ultra-Orthodox Jews had to do if they sought an exemption was “to enlist in the Israel Defense Forces or civilian service.”

But hours later Weinstein told the finance minister that the IDF criterion would not stand a legal challenge. “The attorney general told Lapid that it was critical to preserve equality and recommended leaving the issue of army service open,” said a source who was present at the meeting and requested anonymity.

The proposal was thus approved by the housing cabinet with a clause stating that “entitlement for receiving the benefit for the purposes of this decision will be determined considering the following factors” – which included army service, family status, age and disability.

The program also limits the exemption to houses priced at 1.6 million shekels ($458,000) or less.

The VAT exemption is one of a series of measures – but by far the most controversial – that the government is undertaking as it seeks to put a lid on  housing prices. Prices have risen by some 65% since 2009, putting a home purchase out of the reach of many middle-class families.

The source who attended the meeting said the final criteria would be set in 45 days.

According to estimates, the exemption would cost the government some 3 billion shekels in lost VAT revenue. For every additional 4,000 to 5,000 families to qualify, the state would be deprived of another 1 billion shekels in VAT revenue.

Lapid’s policy of compelling the ultra-Orthodox to serve in the army and enter the workforce makes them a natural target for excluding them from the VAT benefit. But the criteria would also disqualify new immigrants, a community the Yesh Atid leader has no interest in alienating.

Experts on Israel’s immigrant community say that about half have never served in the army because they arrived in the country after age 18 for women and 25 for men, making them too old for the draft.

“Lapid throws around slogans, pulls out plans from the hip and doesn’t check them thoroughly before he announces them,” said Alex Tezner, an activist in the Russian-speaking community. “Many of the people who won’t qualify for the benefit would have been very happy to be drafted, but none of them were."

Immigrant Absorption Minister Sofa Landver, a member of the housing cabinet, has opted to work behind the scenes to change the criteria. She told TheMarker she had supported the exemption plan on the understanding that Lapid would ensure that immigrants would not face discrimination.

Ofer Vaknin