Taxes to Rise NIS 5B

Gasoline, cigarettes, alcohol to cost more.

The Finance Ministry is preparing an unprecedented list of tax increases and other decrees to affect the public in the proposed 2009-2010 state budget and Economic Arrangements Law. The goal is to increase tax revenues by up to NIS 5 billion a year to cover part of the huge budget deficit forecast.

Among the taxes hikes are an increase in taxes on gasoline, alcoholic beverages and cigarettes; a smaller tax deduction for working women; cancellation of the VAT exemption for fruits and vegetables; cancellation of the VAT exemption for services for tourists such as car rentals and hotels; and raising the tax on cellular phones provided by employers.

The list will also have to grow after NIS 3.5 billion in new revenues was cut from the treasury's expectations when the Histadrut labor federation rejected out of hand the proposal to tax advanced training funds.

This is not the first time the Finance Ministry has tried to introduce some of these tax increases, but they have been rejected by the Knesset at one stage or another.

The cut in tax deductions for working women would be partially offset by increasing the deductions allowed for mothers with children under age 8. In addition, the treasury wants to increase the tax levied on lottery and gambling winnings, as well as increase taxes on foreign athletes playing in Israel and for foreign journalists, who would pay the same tax as Israelis.

A major part of the new proposals is a radical demand by the Finance Ministry: Full civilian oversight for the defense budget by the treasury's Budgets Division. The defense budget makes up 20% of the entire state budget, not including debt repayments. This is the largest single chunk of the budget, and the treasury says the time has come to treat defense the same as every other ministry and implement proper civilian supervision.

In addition, the treasury is demanding that the same rules governing state spending apply also to defense spending, such as requiring approval from the Knesset or treasury for transferring budgets within the ministry. Another way to save NIS 100 million a year is to sell off the IDF's Merkava tank production line.