Treasury Raises Home VAT Exemption for Non-veterans

The low price ceiling originally proposed was criticized as discriminating against ultra-Orthodox and Arabs.

Ofer Vaknin

In a major, last-minute change to Finance Minister Yair Lapid’s plan to exempt some home buyers from paying value-added tax, the treasury said on Tuesday it was raising the price ceiling for those who never served in the army or did national service.

The latest draft of the plan will entitle those who didn't serve to a VAT exemption on homes priced up to 950,000 shekels ($274,000,) rather than the 600,000 shekels ($173,000) that was originally proposed

The original 1.6 million shekel ceiling remains in place for buyers who have done military or national service or are disabled.

The two-tier exemption plan came under sharp criticism for effectively shutting ultra-Orthodox Jews and Israeli Arabs out of the benefit altogether. Neither group as a rule serve in the army or performs other national service, meaning that most would only be entitled to the smaller exemption. At the same time, surveys of the housing market found that there were virtually no homes available for 600,000 shekels.

A copy of the revised draft will be circulated for comment to other government ministries on Wednesday, ahead of the cabinet debate slated for Sunday, the treasury said.

Togther with a plan to lower prices for homes built on land bought from the govenrment, the VAT-exemption plan is one of two major programs the government is undertaking to rein in rising housing costs. With VAT at 18%, the exemption could potentially save home buyers tens of thouands of shekels, although many economists have expressed doubut that it will lead to lower home price because the benefit is likely to spur demand.

VAT is only charged on newly-built homes, not on second-hand properties, and the exemption plan is limited to certain categories of home buyers, principally families with children.

Shortly after the plan was unveiled last month, Housing and Construction Minister Uri Ariel demanded that the 600,000-shekel ceiling be raised to 950,000 shekels, saying it was tantmount to discrimination. The attornney general was also uncomfortable with the two-tier plan.

The higher ceiling will enable more buyer to take advantage of the exemption. According to the Madlan real estate website, 15% of new homes sold in Israel last year changed hands for up to 950,000 shekels, although about a third of those were small, three-room apartments, mostly in outlying areas of the country. For 1.6 million shekels, the selection of homes was significantly wider, Madlan said.

If the legislation is approved, the tax authority is planning to post an application on its website which will enable the public to verify their eligibility for the exemption and generate documentation to receive it.