Salary Raises, Spate of Car Imports Lift Tax Revenue to All-time High in July

Tax collection hit record heights in July, surprising even the hardiest optimists at the Tax Authority and treasury. The taxman collected just over NIS 19 billion, the biggest amount ever collected in a single month. It was NIS 6 billion more than collected in June, the records show, and 2.9% more than collected in July 2009 (in inflation-adjusted terms ).

Tax collection is a seasonal affair - different months show different patterns. The month of July tends to be a good one for tax collection. The previous monthly record for collection had been from July 2007, when the taxman took in NIS 18.2 billion. One reason is that public-sector employees receive clothing allowances in their July salaries, which get taxed like regular income.

This July, other elements that lifted the tax take were the upswing in the labor market, wage raises, an increase in corporate profits, and a relatively steep increase in import levies due to a large influx of imported cars and consumer goods.

In fact, although many macroeconomic indicators show that Israeli economic growth is slowing, growth and tax collection have been ramping up for months. In each of the last nine months, more tax was collected than in the comparable months of the previous year. In June, the Tax Authority collected just NIS 14 billion, which is a monthly figure more reminiscent of the years of crisis.

Direct taxes - income tax and land taxes - brought in NIS 8.9 billion in July. Indirect taxes, including VAT and Customs, totaled NIS 9.6 billion. For the first seven months of the year, January to July inclusive, tax totaled NIS 114.5 billion, or 62.5% of the treasury's tax target for the year.

When formulating the 2010 budget, the Finance Ministry had predicted that the Israeli economy would grow by 1% this year. These days it thinks growth will be nearer 4%. Each extra one percent of economic growth translates into roughly NIS 2 billion to NIS 2.5 billion in extra tax.

Present official projections place tax revenue this year at a record NIS 196 billion, which would be NIS 13 billion beyond its target for 2010.