Kiryat Shmona Sues Israel Over $63 Million Tax Demand

The Kiryat Shmona municipality is taking legal action against the Israeli government and the Tax Authority, demanding the cancellation of a NIS 238 million (approximately $63 million) repayment order for business grants. The city argues that businesses in the northern town, which have suffered significant indirect damage since the October 7th Hamas attacks, should not be required to return advances received in 2023-2024. These funds were crucial for paying salaries and suppliers during a period of severe economic downturn.

The Tax Authority has determined that the period of recognized indirect damage for Kiryat Shmona businesses concluded on February 28, 2025. However, the municipality contends that businesses have not returned to full operation and many remain severely impacted, with a significant portion of their customer base still absent due to the ongoing security situation. The city is seeking an extension of the damage recognition period until the city fully recovers to its pre-war state.

According to municipal data, the city's business turnover dropped from NIS 778 million to NIS 589 million, and net VAT revenue fell from NIS 23 million to NIS 12 million. Kiryat Shmona's revenue index decreased by 31%, far exceeding the national average decline of 4%. The municipality emphasized that it is not seeking compensation for itself but is fighting on behalf of its residents and business owners.

Mayor Avihai Stern stated, "We didn't ask for a favor, we asked them to look at this city with their own eyes and see what's actually happening there. The business owners here held Kiryat Shmona together when everyone else was outside. Now it's our turn to hold them. For us, the war didn't end on the date someone marked on a calendar."

If the municipality's demands are not met within two weeks, it plans to file a petition with the High Court of Justice, requesting an interim order.