Government revenue could be NIS 50 billion higher if Israel were to crack down on the underground economy, Deputy Finance Minister Mickey Levy told the Knesset on Wednesday.
"The tax authority estimates that the loss to the state treasury [from unreported income] stands at about NIS 13 billion a year that could be collected," Levy said. "Israel indeed has a significant gap between reported economy activity and actual activity. The World Bank estimates that Israel's real economic activity is 23% greater than what goes reported."
"If only we would all ask for receipts – it's a matter of culture and education, he said, adding, "Here, sadly, it's a national sport."
According to Levy, the Organization for Economic Cooperation and Development estimates that Israel "has 'shadow-economy' activity originating from crime on the scale of NIS 30 billion to NIS 45 billion a year [3% to 5% of gross domestic product]."
Levy Wednesday outlined three ways the government is fighting tax evasion and economic crime. The first is tax legislation intended to close tax loopholes and reduce money laundering. The second is a move to reinforce and streamline the work of the tax authority, thereby boosting enforcement and deterring tax offenders, according to Levy.
Third, the government is shortening bureaucratic procedures at the tax authority and in the court system, Levy said. This is intended to reduce the regulatory burden on citizens while preventing tax offenders from using loopholes to delay or even evade payment of taxes, he said.
The government also wants to expand a money-laundering law to include additional offenses. This legislative change would require financial institutions to increase the scope of their reporting to the tax authority, and would be aimed at closing loopholes that could be used to evade taxes.
The government is also trying to require taxpayers to report instances in which they use tax-avoidance strategies when filing tax returns, as well as their justification for doing so.
The tax authority checks just 3% of the filings, which account for about NIS 6 billion a year in tax revenues, and misses many files using tax-avoidance schemes. By deterring the use of such strategies, the authority estimates it can collect an extra NIS 6 billion a year.
MK Gila Gamliel (Likud) Wednesday criticized the decision to remove a provision aimed at cracking down on the black market from the Economic Arrangements Bill.
Levy responded, "All the laws in the fight against the black market were included in the Economic Arrangements Bill, but the Knesset speaker expressed the opinion that these laws, which on occasion could violate the rights of individuals, should be passed into law following standard procedure. In my opinion, not enough was done regarding this matter over the years."
MK Yaakov Margi (Shas) said he "feels there's an invisible hand preventing the fight against the underground economy. In just the construction industry, which is known to be controlled, [tax] collection could be increased by huge amounts."
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