Municipal Tax Rise May Put Arab Town's Industries Out of Business

Business owners say their businesses are being threatened by a local council decision to increase municipal tax rates due to a change in how businesses are classified.

Anyone who visited the industrial zone at Kafr Kana in the north on Monday would have seen its ramshackle and neglected state, a reflection of hopes that have been dashed for the area. Kafr Kana is home to about 20,000 residents. The town is run by Interior Ministry appointees after the local council was disbanded when financial irregularities were discovered.

About 30 business and small plants employing more than 500 people are located in what Kafr Kana calls its "new industrial zone," but business owners there say their businesses are being threatened by a local council decision to increase "arnona" municipal tax rates in the industrial zone from NIS 30 per square meter to about NIS 67 due to a change in how businesses are classified.

Kafr Kana -  Yaron Kaminsky - 25102011
Yaron Kaminsky

The move, they say, could deal a death blow to many of their businesses and lead to layoffs of hundreds of employees. Two weeks ago, 22 of the business owners filed an administrative appeal seeking to have the council's action reversed.

Among those affected by the arnona increase are Adnan Matar and his son Ala, who run a business that retreads truck tires with the help of their 25 employees. "I'm afraid the business could be destroyed," Adnan Matar said, adding: "Expenses are just going up and up. We're paying NIS 14 per cubic meter of water. Electricity is going up, raw materials, everything [is going up]. Now there's this new decree on arnona, which could be a death sentence for us."

Although the Interior Ministry said the Kafr Kana local council has not applied for an increase in arnona rates, the council spokesman said in response that the current local council administration that was appointed by the Interior Ministry is aware of the issue. The spokesman noted that the current administration was put in place in 2007 after administrative irregularities and a budget overrun of NIS 87 million.

"The decision by the current administrations [to reclassify industrial zone businesses] was made to correct a serious mistake and illegal action taken in 2001 by the prior council administration without the relevant approval of the Interior Ministry, illegally changing the industrial zone's classification from 'industrial and commercial' [which is the correct, true classification reflecting what in practice exists]," the spokesman said, adding that the change resulted in businesses paying NIS 30 per square meter instead of the NIS 67 per meter they should have been charged.

The anger among the business people in the industrial zone in Kafr Kana, an Israeli Arab community, is exacerbated by the stark disparities they see between their industrial district and the Tziporit industrial zone about a kilometer away, which belongs to the predominantly Jewish community of Upper Nazareth. Not only are conditions at Tziporit superior, but businesses there pay NIS 29 per square meter, which is less than the existing rate paid by Kafr Kana's businesses.

Matar's son Ala returned to Israel 11 years ago from Britain, where he studied business administration. He has had ambitious expectations of his family's business, but the current reality is less rosy. "If we fail, the local council and the state won't see any money from us, so what are they gaining from all this?" he asked.