Steinitz Bows to Manufacturers, May Delay Customs Cuts

Taxman fears whole sectors could die.

Customs duty on imports may not be falling as recommended. Finance Minister Yuval Steinitz instructed ministry officials to meet with people at the Manufacturers Association to discuss a delay in implementing planned cuts.

The manufacturers are worried that lowering duties, or their complete elimination, will cost them a pretty penny.

Yuval Steinitz - Ofer Vaknin - 25102011
Ofer Vaknin

The Trajtenberg committee on socioeconomic change recommended eliminating customs duties on imports within two years, cutting duties in half in 2012 and eliminating them in 2013. Industrialists complained that this was much too quick for them to prepare for, and many businesses would be forced to cut back operations and fire workers.

In response, Steinitz instructed Finance Ministry officials, headed by the director of the budgets division, Gal Hershkovitz, to formulate a new schedule more amenable to industrialists in conjunction with the Manufacturers Association. It seems the new proposal will stretch out the process of eliminating customs duties over an additional two years, and in exceptional circumstances the cuts will be stretched out even longer. The cuts in duties will also be made gradually in the new proposal.

The manufacturers want to extend the customs duties for even longer in certain sectors such as textiles, metal and plastic goods. Many factories in these industries have run into trouble because of the international financial crises as demand has fallen for exports and locally, and this situation is not expected to change any time soon.

The ministry does not have a unified policy on the question of eliminating duties, at least for now. The Israel Tax Authority says an across-the-board elimination of import duties will not really help consumers since customs duties account for only 1.1% of the price of imports. But the budgets division supports a complete and quick elimination of such duties as a way of increasing competition and efficiency.

The Finance Ministry said the Trajtenberg committee recommendations were adopted in principle by the cabinet, and the ministry is acting to implement them based on the cabinet decision. "Within this framework we are carrying on discussions with various bodies, including representatives of the manufacturers," said the ministry. "The results of these meetings will be presented to the cabinet, as required."

An examination conducted by the Tax Authority showed that the tax cuts proposed by the committee on food prices - headed by the director general of the Industry, Trade and Labor Ministry, Sharon Kedmi - would cost the state NIS 1.4 billion. This includes NIS 900 million in lower customs revenues and NIS 500 million lost from the cancelation of purchase taxes, mostly on consumer electronics.

The Tax Authority fears that in certain sectors where customs duties are the main protection for local producers, such as agriculture, the cuts could even lead to their extinction. In those industries with a high concentration of economic power in the hands of a few importers and retailers, the Tax Authority is worried that consumers would not see any price reductions. Cellular phones and cars are examples cited by the authority, where the reductions are not expected to help consumers.

The Tax Authority's recommendations are to lower duties on cell phones only after it is assured that consumers will benefit - and not the cellular companies. The authority wants to use the large sums involved in areas that will benefit the public more.

The committee on food prices was scheduled to meet om Monday, but didn't. The committee is supposed to present its results within a few weeks on the large profit margins of the large supermarket chains - at the expense of the public. The food price committee was supposed to present the Trajtenberg committee with data on the food retailing sector, but made do only with recommendations on imports and exports - and barely touched on price increases in the local food industry.