Tax Authority Chief Dismisses VAT Hike as 'Aspirin'
Translated & summarized from Globes by baba
Israel's Tax Authority Director, Shi Ahronovitch, warned of challenging economic years ahead, particularly 2027-2028, due to defense spending. He dismissed raising the VAT as a superficial solution, advocating instead for structural tax reforms. Ahronovitch also expressed concern over the real estate market, cautioning against policies that could lead to a future housing shortage. The Tax Authority is developing a new taxation plan for the incoming government.
The story in 6 lines · by baba
- Tax Authority Director Shi Ahronovitch warned of challenging economic years ahead, particularly 2027-2028.
- Ahronovitch dismissed raising the VAT as a superficial 'Aspirin' solution, favoring structural reforms.
- He noted that the marginal tax rate for working Israelis quickly reaches 50% with added taxes.
- The 'trapped profits' tax reform, generating 10 billion shekels annually, is unlikely to be canceled.
- Ahronovitch urged caution in the real estate market to prevent a future housing shortage.
- A plan for new taxation measures is being prepared for the next Israeli government.
Shi Ahronovitch, Director of the Tax Authority, expressed concerns about the upcoming years, stating that 2027-2028 will be challenging due to defense budget priorities, especially after October 7th. While tax collection has exceeded expectations, Ahronovitch cautioned that "we must remember that there is no eternal strength." He revealed that the Tax Authority is preparing a taxation plan for the next government, which he hopes will include more substantial changes than a Value Added Tax (VAT) increase. Ahronovitch described a VAT hike as a superficial measure, akin to 'Aspirin,' noting that it has been raised before but should not be the primary goal. Instead, he advocates for structural changes.
Ahronovitch highlighted that the Ministry of Finance and Tax Authority teams are focused on the marginal tax rate for working individuals, which quickly reaches 50% when health and national insurance taxes are added. He also pointed out numerous tax credits, particularly for children, that may not always reach their intended recipients. The authority is considering ways to reduce the burden on working individuals by shifting the tax base elsewhere.
Regarding the real estate market, Ahronovitch discussed the 'trapped profits' reform, which taxes "wallet companies." He indicated that the reform, which generates nearly 10 billion shekels annually, will be reviewed for the next budget but is unlikely to be canceled. The current emergency order increasing property acquisition tax to 8-10% is set to expire at year-end, potentially lowering it to around 5%. Ahronovitch noted that the new government will need to decide on extending this order, a move opposed by some in the Treasury and the Housing Ministry due to falling prices. He suggested that a reduction from 8% to 5-6% might not significantly deter investors.
He urged caution regarding the real estate market, citing a weak year for Israel Land Authority (ILA) marketing and fewer construction permits for urban renewal. Ahronovitch fears a future housing shortage due to lower supply in two years, emphasizing the need to protect the real estate market given Israel's positive demographic growth and demand for housing.
