Warring Ministries Shoot Down Plan to Lower Import Tax on Food

No progress has been made for months due to a dispute between the Finance Ministry and the Industry Ministry regarding timeframe.

The government has managed to work out how to lower import taxes on non-food items, but can't seem to work out a similar deal for food. Next week import levies on hundreds of manufactured goods will be dropping, yet a similar drive for imported foodstuffs has bogged down and seems unlikely to proceed for months.

The issue of tax on food imports is being handled by the committee investigating food prices, headed by Industry and Trade Ministry director general Sharon Kedmi. No progress has been made for months due to a dispute between the Finance Ministry and the Industry Ministry regarding timeframe. Sources close to the committee said the treasury wants duties to drop quickly, in keeping with the Trajtenberg committee recommendations, in two tranches over two years. The Industry and Trade Ministry prefers the change take place over five years, similar to the reform involving other import duties.

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The reform regarding non-food goods will do away with or reduce customs on some 700 manufactured items that are not also made in Israel, such as washing machines and dishwashers. That reform calls for gradually reducing taxes by 10% to 15% a year until they are gone entirely by 2017.

The Industry and Trade Ministry firmed its position in consultation with the country's food manufacturers. They are appalled by the idea of customs levies on imports dropping, as this would increase their competition. Manufacturers say that lowering customs fast would ruin companies, particularly small or medium-sized ones.

The Finance Ministry rebutted by noting that the reform that abolished some import duties in the 1990s proved itself as a force for efficiency and industrial growth, and made Israeli products better able to compete abroad. Thus, the quicker that food import duties are dropped, the quicker that local industry will become more efficient, the treasury insists.

The Finance Ministry supports finding other ways to help manufacturers compete against imports, just not through customs duties, which ultimately are passed on to consumers.

Committee members say the issue could take more than a year to resolve.

Meanwhile, the Agriculture Ministry and the Finance Ministry's Tax Authority reached an understanding regarding lowering import duties on fresh food items. The food committee has not yet given its final approval, although sources say they're expected to be approved without changes.

However, parties that will be hurt by the move are pushing hard to have the plan canceled.

The agreement calls for lowering taxes on processed meat products from the current 40% to 12% by 2014. Tax on lamb would be dropped entirely within five months, and tax on mutton would be cut from the current 40% to 30% in 2012. Tax on chicken would be cut 50%.

Tax on fresh meat would be cut from the current 190% to 12%, although an additional NIS 13-16 per kilo would be tacked on to that.

Taxes on canned fish and juice, which currently are between 20% and 40%, would also be cut to 12% by 2013 or 2014.

The Trajtenberg committee, charged with drafting a plan for economic and social reform in the wake of the summer's cost-of-living protests, also recommended allowing imports even at dumping prices. This reform, too, is being blocked by the Industry and Trade Ministry.

Dumping means exporting a product for less than its price in its home market, possibly in an attempt to damage local producers in the importing country and then raise prices. If local importers are indeed being damaged by dumping prices, then governments often impose a dumping tax to raise the cost of the imported good.

However, Israeli monopolies, including Nesher Cement Enterprises and Hadera Paper, have taken advantage of dumping taxes in order to prevent competition.

The Industry and Trade Ministry, which is responsible for setting dumping tax policy, has ignored opinions by the Antitrust Authority stating that it was damaging competition and helping local monopolies preserve their status.

The Trajtenberg committee had recommended dropping monopolies' protection from dumping. Thus, imports at dumping prices would be allowed until Nesher's percentage of the local cement market dropped from the current 90% to less than 50%, at which point the company would no longer be considered a monopoly.

The Industry and Trade Ministry emphatically supported the manufacturers in their objections, pushing the Finance Ministry to offer compromises. Currently the sides are deadlocked.