Israeli Finance Ministry Recommends Against AI Tax

Israel's Ministry of Finance is strongly advising against imposing a specific tax on artificial intelligence, according to a report by Ynet. Finance Minister Bezalel Smotrich had requested a professional review of tax policies in the era of advancing AI technologies, which are increasingly integrated into the workforce and economy.

The initial recommendations, developed by a team led by Chief Economist Dr. Shmuel Abramzon, suggest that the potential harm of an AI tax would significantly outweigh any benefits. Such a tax, they argue, could stifle economic growth engines, hinder technological development, and impede the establishment and expansion of Israeli companies in the AI sector.

The report highlights three main ways AI could negatively impact state tax revenues: erosion of the labor tax base due to job displacement or the use of foreign digital services, the potential for high-tech profits to be shifted abroad to countries with more advanced AI infrastructure, and challenges in maintaining competitiveness and productivity growth in a globalized AI landscape.

Instead of an AI-specific tax, the ministry recommends enhancing tax certainty, favoring taxes not levied on labor (such as on vacant land or consumption), increasing the attractiveness for companies to register and operate in Israel, and preventing the diversion of profits overseas through international cooperation. The team will continue its work and expects to present updated findings in the coming months.