Following the controversy over tax breaks given to major companies in Israel in recent years and Finance Minister Yair Lapid’s announcement that he would revisit the benefits “to revise them and make them conform to the economic reality,” the Knesset Finance Committee approved a revised plan last week for benefits that exporters will receive through the Encouragement of Capital Investment Law. The plan, to take effect from January 2014, will provide reduced tax rates to companies that export at least 25% of their production.
The plan was worked out by the Finance Ministry in consultation with representatives of the Manufacturers Association. Instead of paying the standard corporate tax rate − due to rise from 25% to 26.5% next year − qualifying companies in the center of the country will pay 15% tax, while those in outlying areas will pay 9%.
In practice, however, the new plan is expected to generate more in corporate taxes next year than the current law, which dates from 2011. In the longer term, after the expiration of other currently available tax breaks, the new approach is expected to add about NIS 600 million more a year to the state coffers than present provisions.
Some of the country’s largest corporations currently enjoy particularly steep tax reductions, paying just a few percent of their income in tax, and, in some cases, no tax at all. That is expected to become a thing of the past toward the end of the decade.
The proposal approved by the Knesset Finance Committee last week is slightly different from that of Finance Minister Lapid, who took the helm at the ministry in March, following the January Knesset election. He had proposed that qualifying exporters in outlying areas pay a 10% tax rate rather than the 9% that got the committee’s approval. Representatives of the Manufacturers Association were pressing for a rate of 7.5% to 8% in outlaying areas.
They also unsuccessfully sought different rates for large companies as opposed to smaller ones, but broader reforms are expected to be discussed after the passage of the budget.