Israel Tax Authority Head Warns of Harsh Budget, Proposes Cash Ban
Translated & summarized from Globes by baba
Israel's Tax Authority Director Shay Aharonovitch warned of "cruel" budgets for 2027-2028 due to high security costs and stagnant growth. He proposed eliminating the 200 shekel banknote and eventually banning cash to increase state revenue by an estimated 20-30 billion shekels. Aharonovitch also suggested tightening the "trapped profits" reform and potentially reinstating property tax on vacant land to meet the state's significant financial needs.
The story in 6 lines · by baba
- Tax Authority Director Shay Aharonovitch warned of "cruel" 2027-2028 budgets due to security costs and low growth.
- He proposed eliminating the 200 shekel banknote and banning cash to boost state revenue.
- Aharonovitch suggested increasing the "trapped profits" reform distribution rate from 6% to 8%.
- The Tax Authority may reinstate property tax on vacant land, abolished in the early 2000s.
- Politicians' promises to avoid tax hikes are unrealistic given the state's financial needs.
- The Bank of Israel opposes the Tax Authority's proposal to ban cash transactions.
Israel's 2027-2028 budgets are expected to be "cruel" due to ongoing security expenses and a lack of projected significant economic growth, warned Tax Authority Director Adv. Shay Aharonovitch at an annual tax consultants conference. He cited the war in Iran as a reason for sustained high defense spending, potentially reaching 200 billion shekels annually through 2028, alongside significant military procurement and reservist mobilization issues. Aharonovitch stated that politicians' promises to avoid tax hikes before elections are unrealistic given the state's financial needs.
To bolster state revenue and combat the black market, Aharonovitch advocates for reducing cash usage, proposing the elimination of the 200 shekel banknote and eventually a complete ban on cash transactions. He estimates this could generate an additional 20-30 billion shekels in tax revenue, a move opposed by the Bank of Israel, which he noted is against canceling the 200 shekel note. The Tax Authority is exploring measures to increase state income without raising VAT or income tax.
Another proposed measure involves tightening the "trapped profits" reform, which requires companies to distribute profits or pay taxes. Aharonovitch suggested increasing the required distribution rate from 6% to 8%, arguing it's necessary given the state's financial deficit. This reform, enacted in January 2025, has already yielded tens of billions of shekels for the state, despite opposition from professional bodies who argue it harms businesses. While acknowledging potential negative impacts and promising a review in 2027, Aharonovitch stressed that canceling the reform is unlikely.
Additionally, the Tax Authority is considering reinstating property tax on vacant land, a measure abolished in the early 2000s, which Aharonovitch believes was a mistake. He is working with the Ministry of Finance to develop tax proposals for the upcoming budget aimed at funding defense needs and avoiding broad tax increases or cuts. The goal is to find "smart taxes" that are less damaging to economic growth, as the state needs to raise tens of billions of shekels.
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