Tax Breaks to Cost Israel's Government NIS 90 Billion Over Two Years

Tax breaks given to companies and people will cost the government some NIS 44.25 billion in lost revenue this year and another NIS 44.58 billion in 2014, according to Finance Ministry figures.

Tax breaks given to companies and people will cost the government some NIS 44.25 billion in lost revenue this year and another NIS 44.58 billion in 2014, figures appearing in the Finance Ministry’s draft 2013-14 budget published this week show.

In 2013, the tax breaks, which include discounts on National Insurance payments, the health tax and municipal rates ‏(arnona‏), are equal to 19% of all the taxes forecast to be collected this year, the treasury said. The breaks are also equal to 4.5% of gross domestic product.

In 2014, they are likely to represent a little less of total revenues and GDP − 17% and 4.3%, respectively, according to the budget, which was given to the Knesset to begin deliberations on Tuesday.

Although the figures sound very high, Israel is not particularly generous in awarding tax breaks to its citizens. According to the OECD ‏(Organization for Economic Cooperation and Development‏), which groups 34 of the world’s developed economies, tax breaks in Britain equal 12.6% of GDP, in China 10% and Australia 7.8%.

On the other hand, the breaks offered by Germany amount to just 2% of GDP, the OECD estimates.

In Israel, the lion’s share of the tax breaks offered are on direct taxes. Over the two years 2013 and 2014, NIS 36 billion will be awarded on income taxes and NIS 35.8 billion on land taxes.

Tax benefits of savings and investment will reach NIS 17.24 billion this year and NIS 16.62 billion in 2014, according to the treasury.

Tax breaks for social welfare purposes or to encourage people to live in the periphery will come to NIS 867 billion over the two ears and on real estate transactions to about NIS 4.4 billion, the treasury said. Indirect-tax breaks, mainly the value-added tax and customs, will come to NIS 16.5 billion in 2013 and 2014.

Easements for taxes under the Law for Encouraging Capital Investments, which have aroused much controversy over the last several months, will nevertheless amount to just NIS 6.3 billion this year and NIS 6.7 billion in 2014.

Nevertheless, the figures represent big rises over previous years, according to the treasury. In part this is because even though the law has been amended to remove many of the distortions, companies are still entitled to the benefits they were approved for under the old law.

In 2010, the breaks amounted to lost revenue for the government of NIS 5.6 billion. In 2012, they were forecast to go down to about NIS 5.3 billion, but in the latest budget they are now expected to rise sharply.

About 70% of the tax benefits under the law go to four companies − Teva Pharmaceuticals, Israel Chemicals, Intel and Check Point Software Technologies.

According to the State Revenue Administration, the four companies enjoyed tax breaks amounting to more than NIS 4 billion in 2010. Teva paid a tax rate of 0.3%, or $5 million, on income of $1.6 billion, last year. Intel paid a 5% rate even after the amended law went into effect in 2011. 

Haaretz