Israel's Tax Authority Collects $41 Million in Voluntary Disclosure Program

Israel's Tax Authority has reported collecting approximately 150 million shekels (about $41 million) in taxes through its latest voluntary disclosure program, which concluded recently. This figure is significantly lower than the 5 billion shekels collected in previous programs, leading to questions about its success. Daniel Pesserman, head of tax at the Gornitzky firm, suggests the results are complex and not directly comparable to past initiatives.

Pesserman explained that previous programs were highly successful because they targeted undeclared assets held abroad from an era when foreign income was not taxed, as well as foreign inheritances and gifts. A specific program for the diamond industry also yielded substantial results. He noted that today, major banks in Europe and the US are less likely to hold undeclared Israeli accounts, thus reducing the potential pool of participants for the current program.

The current program saw most disclosures related to rental income, with a smaller portion concerning cryptocurrency. Pesserman stated that initial expectations focused on significant tax revenue from major cryptocurrency players, but the data indicates that smaller investors participated. He attributed this to the program's lack of anonymity, a key feature of previous successful initiatives, which required full disclosure from the outset.

Furthermore, Pesserman suggested that sophisticated crypto investors, potentially operating through foreign entities or residing abroad, may have been deterred by the Tax Authority's refusal to offer a specific, lenient procedure for crypto assets, leaving them potentially liable for full capital gains tax even if asset values decreased. The program's success with rental income disclosures is likely due to its function as a way for individuals to regularize their reporting, especially given existing exemptions and reliefs.

Pesserman defended the use of such programs, arguing that they efficiently bring non-compliant taxpayers into the tax system without the need for costly criminal proceedings, while also ensuring future tax revenue. He also noted that for smaller taxpayers, criminal prosecution is often impractical. He proposed that future programs might need to consider specific approaches for distinct groups, such as sophisticated crypto investors or individuals with undeclared foreign real estate holdings, if better results are desired.