Immigrants Who Didn't Serve in Army to Get Smaller VAT Break

Legislation on home-purchase benefit makes no exception for people who arrived in Israel above the draft age.

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Finance Minister Yair Lapid.
Finance Minister Yair Lapid.Credit: Ilan Assayag

Draft legislation exempting first-time home buyers from the value-added tax makes no special provision for immigrants who were too old to be drafted when they arrived in Israel and therefore never served in the army, sources have told TheMarker.

Under the legislation, as it has been written in its final form by the finance and justice ministries, those immigrants will only be entitled to the much smaller benefit being given to all Israelis who never served in the army or performed civilian national service, sources at the Immigrant Absorption Ministry said.

Unless the terms are changed, they will only qualify for the VAT exemption if they buy a house priced at less than 600,000 shekels ($173,600), including VAT. Under the legislation, those with army or civilian service behind them would be entitled to buy a home valued at up 1.6 million shekels.

The issue was the subject of a tense conversation Tuesday between Finance Minister Yair Lapid, the prime backer of the VAT-exemption initiative, and Immigrant Absorption Minister Sofa Landver. Lapid reportedly told Landver that Attorney General Yehuda Weinstein had ruled that the law could make no exception for new immigrants.

“I say categorically: Immigrants must get the benefit like everyone who served in the army,” Landver said. “They are a community with high levels of army service, one that doesn’t shirk the draft.”

Landver told TheMarker that as a member of the ministerial committee on housing, she had supported the VAT-exemption plan based on assurances that the issue of immigrants would be addressed. Sources at her ministry expressed outrage that the issue was not dealt with in the draft of the bill.

“Concerning the benefits that were going to be awarded, I was promised categorically that the immigrant public would be inside,” Landver said. “It was a personal promise by the Finance Minister given in a cabinet forum.”

As the legislation makes its way through the Knesset, Lapid has vowed to exempt people who were not drafted for reasons of age from the army-service requirement. A spokesman for the Finance Ministry was not immediately available for comment.

With VAT currently at 18%, an exemption from the tax would yield big savings for home buyers. But as surveys have shown since the controversial two-tier benefit was announced earlier this week, virtually no homes anywhere in the country are priced under the lower 600,000-shekel ceiling.

The issue of military service has been controversial because, as proposed by Lapid, it would effectively cut out ultra-Orthodox Jews as well as Israeli Arabs, most of whom do not serve in the army or perform alternative national service. Although there are proposals to narrow the gap by raising the lower ceiling to 950,000 shekels, Lapid says he regards the two-tier system as a fair way to award those who have served the country.

But army regulations automatically exempt from the draft male immigrants who arrive in the country after age 30 and women over 20. Haviv Katzav, deputy director general at the Immigrant Absorption Ministry, said the draft exemption is given by the army without any consideration to whether an immigrant wants to serve.

According to figures from the Immigrant Absorption Ministry, some 260,000 immigrants have arrived in Israel since 1999 over the age threshold. But in fact the army often issues a draft exemption to men as young as 26 and women as young as 18, which means that the number of immigrants who won’t qualify for the bigger VAT exemption could reach as high as 400,000.

Still, many of those people will not meet the other criteria for the VAT exemption, which is limited to first-time buyers of new homes who are married with at least one child. Alternatively, the benefit applies to people at least 35, whether married with no children or single.

According to estimates, the number of immigrants who would otherwise be entitled to the exemption except for army or national service numbers in the tens of thousands.

“The decision not only discriminates against those who have immigrated but also against those who plan to immigrate in the coming years,” said Alex Tenzer, a socialist activist in the immigrant community. “From this perspective, it’s an anti-Zionist decision.”