Israel Looking for Ways of Reducing Cash Use

Governmental plan to use cash crackdown in fight against tax evasion met with widespread criticism.

In a bid to escalate the war against the black market economy, including money laundering and organized crime, the cabinet voted unanimously on Tuesday to form a committee to investigate ways of reducing the use of cash for payments.

The panel, to be headed by Harel Locker, director general of the Prime Minister's Office, was given just 90 days to submit its recommendation to the government. Also appointed to the team were Israel Tax Authority Director General Moshe Asher and Police Commissioner Yohanan Danino, along with representatives of the Finance Ministry, Bank of Israel and the Israel Money Laundering and Terror Financing Prohibition Authority.

"It is estimated that billions of shekels in the Israeli economy go untaxed," said Locker. "The committee will find innovative and logical solutions for correcting the situation and submit a plan for government approval."

The plan, which also hopes to use the crackdown on cash to fight tax evasion, has met with widespread criticism. Many have been warning, primarily through social media networks, that the government was using the campiagn as a way of more closely monitoring people’s business and financial activities. Others complain that the government prefers going after minor offenders rather than prominent tax evaders.

The use of cash is recognized throughout the world as a significant factor in the shadow economy, enabling people to conceal the true extent of their financial activities in the absence of any institutional intermediairies, such as banks and credit card companies. It forms the basis for money laundering and tax evasion and helps finance organized crime. A clear link has been found in many countries between the extent to which cash is used and the scope of the shadow economy.

According to the Bank of Israel, the public is gradually moved towards cashless transactions, but the process must be monitored to ensure it is carried out the right way. The aim at this stage is to encourage wider use of debit cards without fees – effectively "cash cards" – in place of hard cash. This proposed alternative is meant to be readily available to the entire public, including lower socio-economic groups and people receiving government allowances. Even people without bank accounts would be able to get debit cards issued by the postal bank.

The government obtained a report estimating that the amount of cash circulating in the economy reached NIS 55 billion at the end of 2012, with over NIS 49 billion held by the public and NIS 5 billion in the banks. In recent years the amount of cash has been rising at a rapid rate, which would indicate that the number of cash transactions and their value is growing.

The law prohibits cash payments for amounts exceeding NIS 20,000 between businesses, but no similar limit applies to transactions between individuals or between individuals and businesses.

Bloomberg