Israeli Tax Man Takes Aim at Internet Businesses

The Finance Ministry is looking for ways to track unreported money.

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The Israel Tax Authority is considering expanding its data collection on transactions conducted over the Internet, the deputy general of the agency, Eran Yaakov, told the Knesset Subcommittee for the Battle Against Undeclared Funds.

The total amount of such illegal undeclared assets held by Israelis is estimated at some 200 billion shekels ($58 billion), or about 22% of gross domestic product, Yaakov said, conceding that his methodology may not be precise. “In any case, it’s a large element in the Israeli economy,” he said.

The Tax Authority will soon present the Finance Committee with recommendations to expand online reporting requirements, such as for people who have real estate and other financial assets overseas, Yaakov told the subcommittee of the Knesset Finance Committee.

“Many people manage profits but they don’t manage accounts with the Tax Authority,” he said. Online reporting would let the authority better investigate information on black-market and underground activities.

Yaakov called undeclared income and assets a problem for the entire economy, not just for the Tax Authority. When companies don’t pay taxes they receive an unfair advantage.

The black market runs through all sectors of the economy, especially in areas such as construction, subcontracting, agricultural manpower and fuel, he said. Israeli assets held overseas, whether earned there or in Israel, are another major problem.

Other sources of such funds are fictitious tax invoices and illegal activities. Yaakov said the Tax Authority is working to locate tax evaders who do not file annual returns by cross-checking information.

Another area of unreported income is foreign-exchange services, Avi Arditti, a senior deputy director general at the Tax Authority, told the subcommittee. This business generates turnover of some 100 billion shekels annually, he said. The authority discovers 3 billion to 4 billion shekels a year in unreported income.

MK Nissan Slomiansky (Habayit Hayehudi), the chairman of the Finance Committee, pledged to spend a good chunk of time on the war against undeclared funds during the Knesset’s summer session.

He said this problem has a corrupting influence and could help ruin the economy. He said tax collection from such income needed to be increased by at least 10 billion to 15 billion shekels — which could also help ward off tax increases.