Israeli Antitrust, Tax Authorities in Battle Over Fate of Personal Imports

One side wants to use them to boost competition, the other worries about damage to local business and lost revenues to government

Sorting packages at an Israel Post facility.

A battle is brewing over the future of personal imports, the mechanism that allows private citizens to order goods from abroad. Once uncommon, personal imports have exploded as the tax exemption on them has increased and internet shopping at sites like Amazon and Ali Baba has soared.

On one side of the fight is Antitrust Authority Commissioner Michal Halperin. Already when she came into office, she expressed the view that personal imports were a way of increasing competition in Israel’s retail sector and lowering the cost of living.

On the other side is the Israel Tax Authority, which these days is working on a paper that will argue against allowing any exemption at all on personal imports. Citing work by European customs authorities, it will argue that allowing a freer flow of goods subject to little or no tax will force local businesses to close, others to lay off workers and cost the government tax revenues.

It cites the experience of Australia, where from next year an exemption that had been equivalent to $761 is being rescinded.

Online shopping has been growing at a 20% annual pace over the last five years, according to Paypal. It expects internet shopping will grow 18% in 2017 to about 14 billion shekels ($3.9 billion).

Taxes on personal imports

Most of the shopping is done at overseas sites like Amazon and Alibaba, where prices are often much lower than at stores at home. Personal imports are exempt from all taxes up to a value of $75. From $75 to $499, deliveries are exempt from customs but liable for the value-added and purchase tax.

Israeli exemptions ceilings are low. Among countries belonging to the Organization for Economic Cooperation and Development, the average is $200 and in the United States it’s $800.

The Antitrust Authority and the Tax Authority are only two of a small army of groups interested in the fate of the exemption on personal imports.

Siding with antitrust officials are a host of consumer groups, Israel Post, delivery companies and overseas ecommerce sites.

Siding with the taxmen is the Federation of Israeli Chambers of Commerce, which represents merchants, big retailers and shipping mall managers. They argue that on top of the damage to local business and employment, exemptions on personal taxes are unfair because they pay the full array of taxes to the government.

Michal Halperin
Olivier Fitoussi

“You can recommend raising that purchases of up to $5,000 be entirely exempt from tax and import regulations on any rules for safety and public health. You can slash taxes and build logistics centers that will process efficiently a flood of packages coming to Israel as personal imports. But the question what will be about the consequences of such a policy on the business sector and employment,” said Uriel Lynn, president of the Chambers of Commerce.

The battleground

The struggle between the two sides is being waged at an inter-ministerial committee chaired by Shira Greenberg, a deputy budget director at the treasury, and which is weighing reforms of the personal import system.

The panel is examining how to make personal imports easier – for example, increasing the size of a delivery considered as personal imports and easing rules on imports of car parts and smartphones. The committee has no mandate to increase the exemption, but it has discussed raising it to $100.

Finance Minister Moshe Kahlon is entitled to authorize an increase like the one done in 2012 that raised the exemption to $75 from $50.

The Antitrust Authority, in any case, has other ideas about to encourage personal imports above and beyond a bigger exemption. It is urging the committee to recommend erecting a new logistics center dedicated to handling personal imports, and operating a national distribution network. It would compete with Israel Post, which has a very poor record of deliveries.

Halperin is so determined to inject more competition that she is reportedly willing to allow local delivery companies to coordinate operations to help lower prices without risk of antitrust actions. The officials said they would countenance industry mergers, too.

The inter-minsteral committee has achieved two important things by easing rules on personal imports. The first, approved on Wednesday, eases rules on personal imports of food products to allow people to bring in up to 15 kilograms of food and up 15 different food additives at one time. The second slashes the number of auto parts requiring approval to be imported from 20,000 to just 70.

“More than raising the ceiling [on the tax exemption], it’s important to reduce excess regulations and create simple rules,” said one committee source, who asked not be named. “Ordinary consumers don’t have the knowledge that import companies have.”