Tax Takes Jumps as Israel's VAT Rise Kicks In

Thanks to rise in value-added tax to 18% from 16% a year ago, and a hike in cigarettes taxes, the government saw its revenues jump 16.2% in June from a year ago to NIS 19.4 billion after discounting for inflation.

Moti Bassok
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Moti Bassok

Thanks to a rise in value-added tax, to 18% from 16% a year ago, and a hike in cigarettes taxes, the government saw its revenues jump 16.2% in June from a year ago to NIS 19.4 billion after discounting for inflation, the Finance Ministry reported Sunday.

That brought the total tax take in the first half of the year to NIS 116.9 billion, 5.5% more than the year before, the ministry said. That included some NIS 2.1 billion more in direct taxes and NIS 3.1 billion more in indirect taxes, such as VAT.

The figures come as good news for the government as it battles to win Knesset support for the 2013-14 budget, which comes up for a vote later this month. Amid a slowing economy that has depressed tax collections and excessive spending commitments undertaken by the previous government, the treasury is scrambling for ways to close a huge fiscal gap.

Encouraging figures

The latest tax data are encouraging. In the first six months the government collected close to half of its 2013 target of NIS 234.5 billion, even before last week’s tax hike on most alcoholic beverages went into effect. That has boosted confidence among treasury officials that they will meet their revenue target this year, after falling miserably short last year.

Taxes are set to rise further at the beginning of 2014, when planned increases in personal and corporate income tax rates take effect.

Figures released by the Finance Ministry showed a NIS 3.7 billion fiscal deficit in June. That left the deficit for the first half of 2013 at NIS 10.3 billion, narrowing from NIS 11.1 billion a year earlier.

The deficit for the 12 months ending June 30 amounted to NIS 38.2 billion, or 4% of gross domestic product. That narrowed from the trailing 12-month deficits through the end of May, when it was 4.22%, and April, when it was 4.5%. The government’s deficit target for all of 2013 is 4.65% of GDP.

Without an approved 2013 budget in place, since the beginning of the year the government has been restricted to spending one-12th of its 2012 budget each month.

Government spending in June totaled NIS 24.5 billion, including NIS 2.8 billion in interest payments on debt. A seasonal uptick in expenditures was registered in June due to the annual legally mandated “havra’a” vacation pay supplement to civil servants. Government operating expenditures have totaled NIS 112.3 billion so far this year, 4.3% more than at the same time last year.

Revenues from direct taxes reached NIS 9.8 billion in June, 15.5% more than in the same month last year. In the first half year direct taxes totaled NIS 58.2 billion, 3.1% more in real terms than in the parallel period.

NIS 9.1 billion was collected through indirect taxes in June, 17.1% more than the previous year after adjusting for inflation, bringing the six-month cumulative total to NIS 56.1 billion, or 8.2% more than the year before.

Real estate taxes totaled NIS 673 million in June, reflecting a 32% jump that included a 22% rise in betterment taxes and a 35.5% increase in purchase taxes.

Property taxes rose 25% in the first half of the year, including a 17% increase in betterment taxes and a 31% increase in purchase taxes.

The government collected NIS 6.3 billion in VAT last month, a third more than in June 2012. Factoring out the two VAT increases over the past year, VAT revenues still rose 22% from last year due to more revenues from local manufacturing and a decline in tax deductions.

Graphic warning label on a pack of cigarettes.Credit: Bloomberg

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