Reforms to Move Money to Country's Outskirts

More small, mid-sized firms to get benefits at expense of Israel Chemicals.

In an effort to spur investment in outlying areas, the Finance Ministry wants to reform the Law for the Encouragement of Capital Investment. The proposed changes will provide more than NIS 400 million to around 400 companies in the periphery, Haim Shani, the ministry's director general, told reporters yesterday.

The reforms are intended to make Israel a more attractive and competitive place for foreign investment, said Shani.

And more of the benefits will go to small and mid-sized firms. Businesses in the south will get about 30% more in benefits, totaling some NIS 780 million next year. In the north, companies will see an additional 25%, about NIS 550 million. Jerusalem-area firms will get an additional 34%, reaching NIS 84 million.

The Knesset Finance Committee is due to approve the treasury's reforms on Sunday. Shani said the changes will increase tax benefits to firms in the periphery by 28%.

Sharon Kedmi, the director general of the Industry, Trade and Labor Ministry, said the state had granted NIS 6 billion in tax breaks to industry in 2009. Estimates are that between NIS 4 billion and NIS 5 billion were given as direct tax credits, with the rest going to supplement grants awarded under the Encouragement of Capital Investment Law.

The treasury expects the total amount to remain unchanged after next year's reforms, but the distribution will change, favoring smaller companies.

Today, most of the tax breaks go to only seven large companies, but Yehuda Nasradishi, the head of the Israel Tax Authority, says this will change. The treasury forecasts that 193 companies in the north, 128 in the south and 92 in the Jerusalem area will get such benefits next year.

Teva gets NIS 1.8 billion a year in tax breaks

One company that will no longer be eligible for benefits is Israel Chemicals. ICL received the second largest tax benefits after Teva Pharmaceutical Industries. Teva's tax breaks are estimated at NIS 1.8 billion a year, and Israel Chemicals at over NIS 500 million.

Teva will continue to receive such benefits, according to its agreement with the state. This means that all additional money for companies in the periphery is coming from money that previously would have gone to ICL.

Another change will be for large multinational firms with at least NIS 20 billion in annual revenues, NIS 1.5 billion of them in Israel. They will receive larger tax breaks if they invest NIS 400 million in the periphery, NIS 800 million in the center of the country, or set up a research center at a cost of NIS 100 million in the periphery or NIS 150 million in the center. They will also receive such benefits if they hire 250 new employees in outlying areas or 500 in the center.

The main industry to that will be harmed by the changes is mining and the extraction of natural resources, which are already benefiting from public resources.