Company Car Tax to Make Up for NII Break to Working Poor

The head of the Israel Tax Authority (ITA), Jackie Matza, recently proposed to Finance Minister Abraham Hirchson to use the increased tax revenues from the reforms on taxing company cars in place of the income from the National Insurance Institute (NII) payments for low-income workers.

Hirchson passed on the proposal to the Bachar Committee studying a negative income tax.

According to the present tax regulations, workers with incomes up to NIS 4,170 a month pay 0.4 percent of their salaries to the NII. According to the ITA's proposal, and as part of the cabinet's efforts to improve the situation of the weaker segments of the population, these low-income wage earners would be released from NII contributions.

On the other hand, they would not be let off the hook for National Health Insurance payments, 3.1 percent of their wages, which are also paid to the NII.

The cost of the exemption from NII payments to the state budget is estimated at NIS 1.5 billion to NIS 2.0 billion per year.

Matza's suggestion is to cover this amount with the new revenues expected from increasing taxes on the value of private vehicles provided by employers to their workers, part of the reforms proposed by the treasury for next year.

The issue is now waiting for a decision by Hirchson. If he approves the proposed reform for 2007, it would increase tax revenues by NIS 1.5 billion to NIS 2 billion a year.

He is waiting on the Bachar Committee, which is studying the question of implementing a negative income tax. The idea is to provide payments to those who are employed, but earn very low wages.

The treasury's Budgets Division proposed a year ago to cancel NII and health insurance payments for low-income workers as an alternative to a negative income tax. However, there is opposition to such a deal, since it would affect the independence, and income, of the NII, while strengthening that of the treasury and the Budgets Division.