Taxman: Recognizing Childcare for Tax Will Cost State NIS 10b

Israel's Tax Authority vows to battle the precedent-setting court ruling that would recognize childcare expenses as a factor in calculating working mothers' income tax liability.

Senior tax authority officers have promised to take every case to court to fight a sweeping application of the ruling handed down by the Tel Aviv District Court this week.

The authority also intends to appeal to the High Court of Justice to overturn the ruling, say officials.

"We have no other choice," said one Tax Authority officer. "The ruling is a macroeconomic event."

Certainly it is, according to the authority's math. The Tax Authority says this legal precedent could cost it more than NIS 10 billion, based on the fact that the ruling permits claims up to seven years old.

The taxman assumes that recognized childcare costs total about NIS 3 billion annually, and that seven years of backdated claims could total NIS 20 billion. Nevertheless, not everyone entitled to tax redemptions is expected to apply, and especially not for so many years back.

The estimate of NIS 10 billion presumes 50% of those entitled will apply.

The treasury budgets department yesterday assessed the annual cost of the ruling at NIS 1 billion to the state, and said the state simply cannot afford it. In the event that the High Court of Justice endorses the District Court decision, the state's budgetary priorities must be fixed by legislation or amendment.

"I expect we will be forced to appeal the ruling," Finance Minister Ronnie Bar-On said in an interview with Army Radio yesterday.

The Tax Authority also says the judge did not understand that the state already offers women tax benefits to offset childcare costs, through the credit point mechanism. "Two-thirds of all working women do not pay income taxes, and this is not some anomaly. The state grants women tax credit points worth NIS 190 every month, multiplied by the number of children, until age 18. As a result, women's monthly income tax threshold is NIS 7,500, compared to NIS 4,200 for men. What is the meaning of this difference if not the state recognizing the fact that women bear the cost of raising children?"

The authority accused the judge of handing down a "populist ruling that ignores the economy and how it is managed," and pointed out that the ruling helps only women who earn more than NIS 7,500, and does not help poor women at all. "If we want to increase the middle class's available income, instead of handing out money only to women with children, wouldn't it be preferable to distribute it to everyone?" the authority said.