Israel Considers Drastic Cash Reduction, Abolishing NIS 200 Bill

Israel may be on the verge of significantly reducing cash usage, with the Director of the Tax Authority, Shai Aharonovitz, proposing the abolition of the NIS 200 banknote and potentially all cash transactions. Aharonovitz suggested these measures at the annual conference of the Tax Consultants Association in Eilat as a means to combat the black market, boost state tax revenues, and help fund high defense expenditures. He estimated that eliminating cash could generate an additional NIS 20-30 billion annually. These remarks come amid discussions on increasing state income, particularly to cover rising security costs, with the defense budget potentially reaching NIS 200 billion annually in 2027-2028. Aharonovitz warned that the 2027-2028 budget would be "cruel" and require significant funding sources, either through tax hikes or budget cuts. The Tax Authority, along with the Ministry of Finance and other economic bodies, is developing proposals to present to the government, aiming to increase revenue without broadly burdening the public or hindering growth. Options include raising VAT by one percent or increasing income tax rates, though the Tax Authority prefers more targeted solutions.

Despite Aharonovitz's proposals, the Bank of Israel has previously opposed such measures. In April 2025, the bank stated that abolishing banknotes was not on the agenda and that no professional justification had been presented for removing any specific banknote. The Bank of Israel reiterated that the NIS 200 bill, like other denominations, would continue to circulate. Another proposal discussed at the conference involved tightening the "trapped profits" law, which requires companies to distribute a certain percentage of profits to avoid taxation. Aharonovitz suggested increasing this required distribution from 6% to 8%, a move that drew opposition from Yaron Gindi, president of the Tax Consultants Association, who highlighted business sector concerns. Gindi proposed alternative revenue-generating strategies, such as reducing taxes on labor, increasing capital taxation, and taxing rental income from the first shekel, as well as taxing digital services. He also criticized government bureaucracy and regulation for burdening businesses and increasing the cost of living, suggesting that reducing these obstacles could stimulate economic activity and state revenue.