Cabinet to Consider Plan to Crack Down on Tax Evaders

The government hopes to generate NIS 2 billion in new tax revenue next year thanks to this initiative.

In addition to the spending cuts and new taxes to be considered on Monday by the cabinet, its members will also be presented with a plan that could provide the Israel Tax Authority unprecedented powers to crack down on undeclared income and to collect unpaid taxes.

The government hopes to generate NIS 2 billion in new tax revenue next year thanks to this initiative, and to bring in NIS 5 billion to NIS 6 billion a year by 2015. Provisions in the plan call for the authority that combats money laundering to transfer any relevant information in its possession to the Tax Authority as well. The Tax Authority views such a step as revolutionary in that up to now the anti-money laundering agency opposed such a policy.

The powers that will be conferred on the Tax Authority might even include the right to seize tax evaders' cars if they are parked in a public location, although no final decision on that has been taken.

Some of the provisions to be considered by the cabinet were included in the plan only after a major battle with the Justice Ministry, and due to the personal intervention of Finance Minister Yuval Steinitz, who met to discuss it with Justice Minister Ya'akov Neeman and Attorney General Yehuda Weinstein.

Another provision of the new scheme, which has sparked opposition, would give the Tax Authority the same enforcement powers vis-a-vis taxes as the Justice Ministry has.

If this directive is approved by the cabinet and the Knesset, the Tax Authority will be able to access funds in bank accounts, seize tax evaders' cars and bar people who owe taxes from leaving the country. According to another measure in the enforcement package, if a company incorporates another firm in an effort to evade a tax obligation, the new company would be liable for the old company's tax liability.

People who are involved in the so-called underground economy often make payments of value added tax in cash to make it difficult to track them down. Such cash payments are currently allowed to total as much as NIS 20,000, but the new enforcement package would lower that to NIS 10,000 with stiff penalties for those who break the law. The new plan would also crack down on people who exploit the VAT-free status of Eilat to evade the payment of value added tax. Furthermore, the new scheme would allow the Tax Authority to offset any tax credits owed a taxpayer in one department by debts owed to another. Currently that is not the case.

No one knows the precise extent of undeclared capital in Israel, but experts estimate that it is somewhere between NIS 86 billion and NIS 216 billion. Another no-less important question is how much undeclared income is produced in Israel on an annual basis.

According to the Organization for Economic Cooperation and Development, which represents the world's developed economies including Israel, unreported underground income in the developed world represents about 2.5% of GDP on average. Based on such a statistic, the comparable figure in Israel would be NIS 20 billion a year.

The Israeli body which is working to combat the underground economy has its own figures based on research, however, that estimates that figure to be NIS 10 billion.