Cabinet Mulls Controversial Tax Breaks at New Cyber Center

Lapid opposes Netanyahu's tax plan to grant tax breaks for firms locating to Be'er Sheva's cyber-security center.

Olivier Fitoussi

The Prime Minister’s Office is pushing for the cabinet to approve a plan that would provide 20 percent tax breaks for companies locating to Be’er Sheva’s cyber-security center between 2015 and 2017. The plan is prompting disagreement, in part over the propriety of granting tax breaks that would apply to just one small geographic area – the cyber-security business park that is being developed in the Negev city.

Finance Minister Yair Lapid opposes the measure, which is to be considered at today’s cabinet meeting. The plan is projected to result in a loss of about 50 million shekels ($14.6 million) in annual tax revenues, and is also slated to provide smaller tax breaks beyond 2017. Naftali Bennett, whose Economy Ministry focuses on expansion of employment including export-oriented high-tech employment, supports the plan, as does Silvan Shalom, the minister for regional development and development of the Negev and Galilee.

Some of those opposing the proposal note that the average salaries in Israel’s cyber-security industry are already substantially higher than the average national wage in the economy as a whole, adding that the cyber-security field is potentially highly profitable without the tax breaks, which would apply to payroll expenses. Israel is a leading player in the field, which protects computer systems and databases from hostile intrusion by hackers and computer viruses. Worldwide, the industry is expected to double in size in the next six years, to some $120 billion.

Concern has also been expressed that the proposed tax credit would be provided for a business park that is being developed by a private company, Bayside Land Corp. – also known by its Hebrew name, Gav Yam. The company, which has a majority stake in the venture, would in turn be able to decide who gets the tax benefits by choosing which tenants it rents to.

As a result of the tax break, it is argued, Gav Yam would also be able to charge increased rental rates. Proponents of the plan see it as part of efforts to make the center a world leader in the cyber-security field, attracting companies that would employ thousands of employees there.