Israel Considers Cash Ban, Property Tax to Boost State Revenue
Translated & summarized from Maariv by baba
Israel's Tax Authority is considering a ban on cash transactions, potentially generating up to 30 billion shekels. Director Shi Ahronovich also proposed reinstating property tax and increasing corporate taxes. These measures aim to avoid broad tax hikes and budget cuts, especially with projected financial challenges in 2027-2028 due to defense spending. Other suggestions include taxing foreign digital services and reducing bureaucracy, while concerns remain about the impact on economic growth.
The story in 5 lines · by baba
- Israel's Tax Authority is considering a ban on cash transactions to raise up to 30 billion shekels.
- Director Shi Ahronovich proposed reinstating property tax and increasing corporate taxes.
- The proposals aim to avoid VAT hikes and budget cuts amid projected financial challenges.
- Other options include abolishing the 200 shekel banknote and taxing foreign digital services.
- Tax consultants advocate for lower labor taxes and taxing capital gains from the first shekel.
Israel's Tax Authority is exploring a significant shift away from cash transactions, with Director Shi Ahronovich proposing a ban on cash use. This move is estimated to potentially bring up to 30 billion shekels into state coffers. The proposals come amid concerns about potential VAT and income tax hikes, and other suggestions like reinstating property tax and increasing corporate taxation.
Ahronovich also raised the possibility of abolishing the 200 shekel banknote as part of the effort to reduce cash usage, referencing a recent corruption case involving large sums of cash found at the home of the mayor of Kfar Saba. He stressed that these were positions presented at a conference, not official decisions, and that a VAT increase is a risk due to a lack of budgetary alternatives, not a decided step.
The Tax Authority is collaborating with the Ministry of Finance's Budget Department and chief economist to develop tax proposals for the 2027 budget. The goal is to find revenue sources that will have a lesser impact on the public and economic growth, particularly as the years 2027 and 2028 are projected to be financially challenging due to high defense spending and a lack of significant growth.
Ahronovich stated that a range of options will be presented to the next finance minister and government to mitigate the need for broad tax increases, widespread budget cuts, or further reductions in public sector employee benefits. One supported option is the reinstatement of property tax, which he believes was wrongly abolished in the early 2000s. He also suggested increasing the profit distribution tax under the "trapped profits" law from 6% to 8% if budget needs dictate.
In contrast, Yaron Gindi, President of the Institute of Tax Consultants, advocated for reducing taxes on labor and taxing capital gains from the first shekel, including rental income. He also supported taxing foreign digital services like Netflix to equalize tax conditions with local companies. Gindi argued that reducing bureaucracy could stimulate economic activity and increase state revenue, suggesting that easing burdensome regulations on businesses could help address budget needs and reduce the cost of living.
Ahronovich responded to Gindi's concerns about the "trapped profits" law, stating it's too early to assess its impact on growth and that its repeal would be difficult without an alternative revenue source. He concluded that "smart taxes" are needed, which are less damaging to growth, to avoid further public sector salary freezes or cuts to recovery grants.
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