Treasury Unveils House-tax Formula That Might Befuddle Einstein

New system is not only complicated but places false values on properties, say experts.

Apartment buildings under construction in Netanya (archives).
Ofer Vaknin

If Finance Minister Moshe Kahlon’s proposed tax on people owning three or more homes isn’t enough incentive to coax them into selling their properties, maybe the formula for figuring out how much they owe will be.

And, here it is: V = 15,148 (1.49–0.2362P–0.01037S+0.0238P+0.0066S+0.0042PS)

The formula was released Tuesday in a draft version of the legislation imposing the controversial tax, which is aimed at easing the shortage of housing that economists say has been a key factor on skyrocketing home prices.

The V refers to the value of the property per square meter. P is the so-called Peripheral Index published by the Central Bureau of Statistics that assigns a value to each local authority on the basis of its distance from the greater Tel Aviv area and S is the CBS’s socioeconomic index.

The figure of 15,148 is the value in shekels of the average home in Israel per square meter (or $4,004), which serves as the baseline for valuing a taxable property. The P and V then adjust it to roughly the true value.

Thus while the Tel Aviv suburb of Herzilya and the northern town of Kfar Tavor both enjoy the same high socioeconomic level, Kfar Tavor is much further away from the center of the country and the value of its homes are correspondingly lower.

Experts greeted news of the formula with derision. Yaron Tikotzky, a tax attorney, said it violated the principle of “keep it simple” when it comes to tax law.

“The formula imagines that all the properties in one city are the same and the only difference is how big they are,” said another tax attorney, Ron Segev. “If you were to take similar-sized apartments in north and south Tel Aviv, the formula sets almost the same level of tax.”

Treasury officials said the original plan was to base the tax on property valuation which the Government Assessors Office had prepared for the abortive zero-value-added-tax plan that Yair Lapid, Kahlon’s predecessor at the treasury, had proposed to solve the housing crisis. Most of the work, it had been thought, had been done and only needed to be brought up to date.

But as it turns out, the amount of work required would have overwhelmed the assessor’s office or the Israel Tax Authority. They were also concerned that homeowners would appeal valuations, crowding the courts with lawsuits.