Lawmakers Seek to Raise Home-buying VAT Exemption for Israelis Who Don't Do Army Service

The Knesset Finance Committee wants to raise the exemption from value-added tax for new-home buyers who have never served in the army or performed national service to 950,000 shekels ($275,000), 350,000 shekels more than the treasury is proposing, sources said Monday.

The higher ceiling would still be well below the 1.6 million-shekels allowance for army veterans and those who have done national service, but it would go a long way to closing the gap and answer critics who said the treasury ceiling is too low to make the exemption worth anything to home buyers. With VAT at 18%, the exemption could potentially save home buyers who qualify hundreds of thousands of shekels.

On Monday, a day after the treasury unveiled the details of its VAT-exemption plan, Finance Minister Yair Lapid came to the defense of the discriminatory benefits, saying that “those who give more [should] get more.”

“We are not prepared to apologize for being Zionists,” Lapid told a conference sponsored by the Calcalist business daily. “The government is allowed to fight for its values and decide that there should be a link between those who receive benefits and those who fulfill their duty. That’s what we have done.”

The VAT-exemption plan, which aims to ease the high cost of housing, contains a host of other conditions, including the age and family status of the buyer. But the two-tier structure of the exemption has caused legal and political headaches for Lapid, its prime backer. It means that most ultra-Orthodox Jews and Israeli Arabs, who generally neither serve in the army nor do national service, will be entitled only to an exemption on the lower price.

While the plan as currently structured passed muster with Attorney General Yehuda Weinstein, it has not yet been submitted to the Ministerial Committee for Legislation or gone to the Knesset.

The Finance Committee’s proposal for a 950,000-shekel ceiling reflects the fact that few new homes on the market are priced as low as the original proposed ceiling.

A survey by the Housing and Construction Ministry found that only 364 homes nationwide sold for less than 600,000 shekels in 2013; in 2012, that figure was just 212. There was not a single locality anywhere in the country where the average price for a new home was under 600,000 shekels including VAT, and only three communities fell within the price range excluding VAT.

Other doubts about the 600,000-shekel ceiling were raised by Justice Minister Tzipi Livni, who on Monday ordered her staff to verify the accuracy of housing data that her ministry was provided by the Finance Ministry.

Livni said providing more generous benefits to those who have served the country is appropriate, but an official at her ministry – who asked not to be named – questioned whether the proposal would withstand the scrutiny of the High Court of Justice.

In other housing news, following agreement with the Finance Ministry to fund the project, the Immigrant Absorption Ministry published a call for proposals for the building of 3,000 public housing units to be rented to elderly immigrants. The undertaking will provide qualifying municipalities with 110,000 shekels in aid per unit, at an estimated total cost to the treasury of 1 billion shekels.

The ministry has already been in touch with local authorities in areas with large numbers of immigrants – including Netanya, Bat Yam, Rishon Letzion, Carmiel and Tel Aviv – about putting the plan into effect.