The State Is Among Largest Tax Evaders, Treasury Discovers

An investigation indicates that all government offices systematically pay their workers salary perks without deducting taxes as required by law.

It turns out that even the income tax authorities don't always operate by the book, according to a preliminary investigation of the salaries of 300,000 civil servants that was launched by the department of the accountant general in the Finance Ministry. The initial results indicate that all government offices systematically pay their workers salary perks without deducting taxes as required by law. The culprits include the Finance Ministry itself - among others, its income tax division, now known as the tax authority.

It seems that this division illegally accorded its workers the benefit of reimbursing per diem expenses abroad. The law allows reimbursement of net per diem expenses to an employee up to a specified daily maximum. Reimbursing a per diem at a higher rate is considered a salary benefit and must therefore be included in the gross salary of the employee, from which income tax is deducted.

It appears that the state was paying its employees, on an ongoing basis, per diems that were above the permitted ceiling - without the additional funds being reflected in the gross salary and without employees paying the requisite income tax.

A tax authority spokesperson confirmed that it was likely there had been instances like these but, she insisted, this occurred "in rare and exceptional cases, concerning [trips to] countries where the per diem ceiling is different than the norm."

Payment of salary benefits without deducting income tax was not so rare or exceptional in most government ministries. Such benefits provided there included scholarships for children of security establishment employees, meal subsidies, automobile maintenance, tickets for shows and funding for summer camps for employees' children at the expense of a particular ministry or municipal authority. These benefits, which all require income tax payments, are paid on an ongoing basis to hundreds of thousands of civil servants without income tax being deducted.

Sources at accountant general Yaron Zelekha's office in the Finance Ministry estimate that the scope of tax concealment, through benefits paid to civil servants, is in the tens of thousands, if not hundreds of thousands or millions of shekels, making the state one of the largest tax evaders in the country.

In light of finding these irregularities, the department of the accountant general decided to open a comprehensive examination and to check the salary slips of 300,000 civil servants and retirees.