Tax-cheat New Firms Face Gov't Watchdog

Beware, if you'd thought to open a company to evade higher social security and health taxes. The Tax Authority vowed yesterday to give "special treatment" to workers who incorporate companies with that aim in mind.

Until this week, monthly health care tax and National Insurance Institute payments stopped climbing at a ceiling of NIS 38,415. From this week, the ceiling was reset at NIS 76,830, in force until the end of 2010.

However, higher earners can be a savvy bunch. Lawyers and accountants report a surge of calls about the possibility of dodging the tax by replacing a salary with "management fees" charged by a company they would incorporate for that purpose.

Everybody grossing more than NIS 38,415 a month is affected by the change. The Tax Authority estimates that the hike applies to about 85,000 people.

In short, the Tax Authority will be taking a very close look at very recently incorporated companies, to judge if their justification for existence is to dodge the tax hike. Mainly, it's going to look at companies registered after May 1, when the news of the tax hike broke.

The Tax Authority will be cooperating with the NII to track down suspicious cases, it said.

Tax experts, however, are doubtful about the Tax Authority's actual ability to put its threat into effect, in part because it doesn't have the manpower and because it is likely to gain very little compared to the outlay on investigation.

A source at the Tax Authority said yesterday that the purpose of raising the ceiling on social security payments is to increase the tax burden on the well-to-do, so they would participate in the national effort to extract the economy from recession.