Israel Considers New Taxes Amid AI Job Displacement Fears

Israel's Ministry of Finance is exploring significant tax reforms to counteract potential job losses and reduced state revenue stemming from the increasing integration of artificial intelligence (AI) into the workforce. A special team, led by Chief Economist Dr. Shmuel Abramzon, is examining how to address a scenario where AI systems replace human workers, leading to unemployment and a subsequent decline in income tax collection.

Among the proposed measures is increased enforcement of Value Added Tax (VAT) collection from foreign companies providing digital services directly to Israeli consumers, a concept previously dubbed the "Netflix tax." The Ministry is also considering raising consumption taxes on luxury goods and reinstating property taxes on vacant land. These proposals aim to shift the tax burden away from labor and towards capital and consumption.

The concern driving these considerations is that companies might opt to purchase AI and digital services from abroad instead of paying salaries to Israeli employees. This could result in a dual loss for the state: decreased employment and wage income within Israel, and a reduction in taxes typically collected from domestic economic activity. The team has warned that payments for services rendered outside the country could replace domestic payrolls.

Additionally, the Ministry is contemplating levies or taxes related to the land and energy consumption of server farms and large computing infrastructures. However, a direct "robot tax" on computing power or AI agents is not favored, as it is feared such a tax could hinder Israel's innovation and competitiveness.

The idea of a property tax on land is not new; the Ministry had previously advanced a proposal to reintroduce taxes on various types of land as part of the 2026 Arrangements Law. At the time, the Chief Economist explained that the need for such a measure was partly fiscal, and that the Ministry preferred increasing real estate taxation over labor taxation. The potential impact of AI on the job market has now given this proposal renewed significance.