The three-month exemption on municipal taxes granted to Israeli businesses during the first wave of the coronavirus crisis has now run out, and Israel’s Finance Ministry is setting stricter terms for a new relief plan. Business sector sources fear the result could be a new wave of businesses collapsing.
The initial exemptions were granted from March through May. The Finance Ministry had at one point suggested that it would offset municipal real estate tax (arnona) payments through grants to businesses that saw their incomes plummet, but it seems to have backtracked from that plan. Instead it is now proposing that it will grant businesses “arnona grants” through local authorities – paying their arnona bills for them should they meet certain criteria for lost income.
The new plan is expected to cost the government 1.1 billion shekels ($294 million). The arnona exemption was granted during the shutdown amid the first wave of coronavirus infections, as part of an arrangement between the national government and local authorities – which collect and are funded by arnona payments.
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Most businesses received a discount, with the exception of the few that were not harmed by the shutdown, such as pharmacies and grocery stores. The exemption cost local authorities some 2.8 billion shekels, of which the government made up 2.7 million shekels.
The new grant program, part of the second phase of the government’s plan to help small and mid-sized businesses, sets a stricter cutoff than previous grants. The previous grant for businesses and self-employed Israelis was given to those who could prove that their income declined by 40%, while the new one will be limited to businesses with annual turnover of 18,000-100 million shekels whose revenues declined by at least 60% compared to 2019. In most cases, these are businesses that are no longer profitable and have been accruing major losses.
The relief program, managed by the Finance Ministry, will include a payment offsetting arnona taxes plus an additional grant.
At the same time, municipal taxes are set to rise by 1.1% starting in December 2021. While the pandemic crisis is yet to impact plans for the tax increase, the Finance Ministry has delayed a plan to raise municipal real estate taxes for households.
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In debates on the relief program, local authority representatives raised concerns that many businesses simply wouldn’t pay arnona because they’d lack the resources to do so, and that they also wouldn’t give the local authorities the grant money they received from the Finance Ministry to offset their arnona payments. In response, the decision makers decided that the money would be sent straight to the local authorities and the eligible businesses would be informed that they were exempt from paying municipal taxes for June-August.
The Finance Ministry is currently building the system for distributing grants, and does not know when it will finish. Eligibility will be determined, among others, by a declaration by businesses of the extent to which their revenues have fallen.
Eligible businesses that already paid arnona for June-August are supposed to receive a refund.
The Federation of Israeli Chambers of Commerce and the employers’ union criticized the new grant program, stating that even businesses whose revenues declined by less than 60% were still struggling, and that they also deserved more relief. Businesses that cannot make arnona payments may find themselves falling even deeper into distress, they stated.
Federation chairman Uriel Lynn called on Israel’s government to come up with a more comprehensive, systematic relief plan, in place of the piecemeal grants given up until now.