Israel Rejects New Digital Taxes, Focuses on Growth

Israel's Ministry of Finance has recommended against imposing specific taxes on advanced technologies like artificial intelligence and algorithms, according to initial findings from a professional team led by Dr. Shmuel Abramzon, the chief economist and head of state revenues. The report, commissioned by Finance Minister Bezalel Smotrich, strongly advocates for fiscal policies that encourage economic growth and maintain competitiveness in the digital age.

The team's research, as reported by Ynet, indicates that taxing robots, advanced computing, or AI agents would cause more economic harm than any potential tax revenue gained. Such a move could stifle technological development, drive away Israeli companies, and directly damage the growth engines of the local high-tech industry.

Simultaneously, the Ministry of Finance has warned of three significant risks to state revenue: erosion of the tax base due to stagnant wages and job losses to foreign digital services, the diversion of high-tech profits to countries with favorable computing infrastructure like the United States, and difficulties in maintaining productivity and a positive business environment.

To address these challenges, the report's authors suggest avoiding taxes on labor and exploring alternative revenue sources. Proposed measures include increasing certainty in the tax system, prioritizing consumption taxes, taxing vacant land, and incentivizing the distribution of undistributed profits. Additionally, the report recommends strengthening enforcement against the diversion of income abroad through international cooperation and considering targeted taxes on limited resources such as energy and land.

The professional team is expected to present updated conclusions in the coming months.