Intel May Establish a New Israel Plant in Exchange for Future Tax Benefits

Government sources say it must be determined whether the Israeli economy stands to gain from a new plant in Kiryat Gat, which will cost an estimated NIS 1 billion to 1.5 billion.

Intel has begun talks with the government in recent weeks over whether it will be entitled to tax breaks or a grant if it opts to build a new semiconductor manufacturing plant in Kiryat Gat, a government source told TheMarker on Sunday.

Right now, officials are divided. The source said officials are leaning toward offering tax breaks to the the U.S. semiconductor maker. But other officials have said tax breaks come at a cost to the government, since they deprive it of an unknown amount of tax revenue. Granting aid is preferable, they argued, because budget planners know the full cost of what they are undertaking.

News reports over the weekend said that Intel intends to ask the government for a grant of between NIS 1 billion and NIS 1.5 billion for the new plant, which would be adjacent to its current facility in Kiryat Gat, known as Fab 28. The factory might be developed from an existing plant, operated by Micron Technology, or built from scratch.

Before they can go ahead with the debate over what kind of aid Intel should get, officials will have to first determine whether the overall economy stands to benefit enough to justify the cost. Intel's current plant exported some $4.2 billion last year, accounting for a tenth of Israel's total exports.

"We need to conduct an examination showing that the payback to the economy from the benefit will be greater than the benefit given, and also ask whether Intel would invest in a plant without receiving any aid," the source said.

If the aid is deemed worthwhile, the money will have to be pulled from other items in the budget, he added, "just as billions are diverted each year to the Defense Ministry."

One source of this money would be the Economy Ministry's Investment Center, which makes grants to companies that qualify under the Law for Encouraging Capital Investment. Since the Intel grant wouldn't be given all in one year, the center might be able to fund its part of the commitment from its existing budgets, which stands at NIS 450 million in 2013 and NIS 500 million for 2014.

Intel has had manufacturing operations in Israel for close to two decades, starting with a fabrication facility in Jerusalem. During this time, it has won about $1.3 billion in government aid. Each new factory it builds directly employs about 3,000 production workers and creates additional jobs for subcontractors and service providers.

Intel already enjoys far-reaching tax benefits: It pays 5% corporate tax under the Law for Encouraging Capital Investment, at a time when the corporate tax rate is set to climb to 26.5%.

In response to the reports about Intel's feelers, the Economy Ministry said, "The ministry is in constant touch with Intel, just as it has been throughout the last few years. However, no official request has been submitted in connection with the subjects mentioned. When it is submitted, the ministry will study it and address all the implicit issues."

The Finance Ministry said on Sunday that so far, no "official request" has been received from Intel.

Amir Teig contributed to this report

Courtesy of Intel Israel