Israel Tax Authority Chief Warns of Real Estate Market Dangers
Translated & summarized from Ice by baba
Israel's Tax Authority Director Shai Aharonovich warned of a potential future shortage in housing supply and cautioned against actions that could harm the real estate market. He questioned the impact of a potential purchase tax reduction for investors and highlighted a significant drop in investor activity since 2021. The Tax Authority is preparing tax reform proposals for the next government and exploring alternative revenue sources, including the potential return of property tax, due to concerns about AI's impact on high-tech payroll taxes.
The story in 6 lines · by baba
- Tax Authority Director Shai Aharonovich warned of a potential future shortage in Israel's housing supply.
- He expressed concern that drastic measures could harm the real estate market's activity.
- Aharonovich questioned if a purchase tax reduction for investors is the sole deciding factor for purchases.
- Investor activity has significantly decreased since 2021, from 27% to approximately 14% of buyers.
- The Tax Authority is considering alternative revenue sources, including reinstating property tax.
- AI's impact on high-tech payroll taxes could necessitate new income streams for the state.
Shai Aharonovich, Director of the Tax Authority, has expressed concerns about the state of Israel's real estate market, warning of potential future housing supply shortages. Speaking at an annual conference, Aharonovich cautioned that while apartment prices have decreased, drastic measures could harm the market's activity. He specifically predicted a significantly lower housing supply in two years due to weak land marketing and investment in the sector.
Aharonovich also addressed the possibility of reducing the purchase tax for investors from its current 8% to 5%-6%. He questioned whether the tax difference alone is the decisive factor for investment purchases, noting that investor activity has fallen dramatically since 2021, when investors constituted 27% of all buyers compared to the current approximate 14%. He highlighted that a reduction in purchase tax in February, coupled with an expected interest rate cut in November, could reignite investor demand and drive up housing prices.
The Tax Authority is developing tax reform proposals for the next government, anticipating challenging budgets in 2027-2028. Despite recent strong tax collection, Aharonovich stressed that this trend is not guaranteed to continue. He stated he does not currently support raising VAT but is exploring targeted measures like adjusting income tax brackets and tax credits to ease the burden on workers and self-employed individuals while maintaining state revenue.
Regarding the "trapped profits" tax law, Aharonovich confirmed it will not be canceled, as it generates approximately 10 billion shekels annually. However, he indicated a review of its economic impact and potential adjustments will be necessary by 2027. He also noted that the artificial intelligence revolution could negatively impact state revenue from high-tech payroll taxes, prompting the Tax Authority to consider alternative income sources, including the potential reinstatement of property tax.
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