Zero-VAT for Home Buyers Wins Committee Backing, but at a Price

Finance Minister Yair Lapid is forced to concede a medical-tourism tax and will have to battle to bring the bill to the full Knesset.

Ofer Vaknin

The so-called zero-VAT bill, Finance Minister Yair Lapid’s flagship initiative for bringing down housing prices, won approval from the Knesset Finance Committee on Wednesday, but not before Lapid sacrificed other policy goals to ensure he had enough votes.

Moreover, the legislation may be held hostage in the Knesset, where it still needs to pass its second and third readings before becoming law.

The zero-VAT bill would exempt large categories of people buying their first homes from the 18% value-added tax.

Lawmakers in Lapid’s Yesh Atid party were pressing hard to hold the vote on the bill next week. But Knesset Speaker Yuli Edelstein vowed to hold up debate until the treasury resolved its dispute with Likud MKs over splitting off key sections of the Economic Arrangements Bill and putting them to vote as separate pieces of legislation. The arrangements bill accompanies each budget bill.

The repeated delays in getting zero-VAT through the Knesset have cast a shadow over the real estate market, deterring buyers from closing deals and builders from starting new construction.

On Wednesday, the finance committee added several new categories of buyers entitled to the exemption, including the handicapped, divorced parents and young couples undergoing fertility treatments. But it did not include so-called purchasing groups, as many have wanted.

The battle between Lapid and Likud over the Economic Arrangements Bill meant that the finance minister had to enlist Yisrael Beiteinu lawmakers on Wednesday to support zero-VAT in the absence of Likud backing. Yisrael Beiteinu leader Avigdor Lieberman’s price was a promise to include new immigrants among those entitled to the exemption.

More importantly, Lapid also acceded to Lieberman’s other demand that the parts of the arrangements bill dealing with a new tax on medical tourism be sent to the Knesset Labor, Welfare and Health Committee. Moving it to the committee effectively kills the new tax, sources in Yisrael Beiteinu and Likud said.

Edelstein and Likud, meanwhile, are demanding that key parts of the arrangements bill be split off.

Apart from the tax on medical tourism, they want clauses forcing the Jewish National Fund to hand over 1 billion shekels ($260 million) to the government next year. They also want the government to sell shares in state-owned companies and reduce the size of the civil service.

Furthermore, MKs from United Torah Judaism, Shas and Labor said they would try to delay the zero-VAT legislation from going through by declaring it a new law, due to the changes put in by the finance committee, and having it go to the Knesset House Committee for a vote as well.