Israel Chief Seeks to Abolish 200 Shekel Note

Speaking at a conference for tax consultants, Aharonovich argued that cash fuels the shadow economy and its removal could generate an additional 20 to 30 billion shekels in tax revenue for the state. He cited the example of 200 shekel notes found in a safe belonging to the mayor of Kfar Saba.

However, the Bank of Israel has expressed opposition to the proposal. In a statement following Aharonovich's remarks, the central bank reiterated that the authority to abolish banknotes rests with the Bank of Israel's governor. The bank emphasized that no professional justification for abolishing any banknote has been presented to the governor, and no country has completely eliminated cash. Consequently, the governor has no intention of abolishing banknotes or altering the existing currency structure.

Aharonovich's statements come amid political promises to avoid tax increases in the upcoming budget. He warned that the 2027-2028 budget will be extremely tight, with no significant economic growth anticipated and ongoing conflicts requiring a defense budget of approximately 200 billion shekels for both years. He also criticized rising expenditures on reservists and the procurement of Apache helicopters, a move opposed by the finance minister.

These proposals aim to raise tens of billions of shekels with minimal impact on economic growth and without increasing VAT or income tax. One measure under consideration is tightening the reform on undistributed profits, potentially increasing the mandatory annual distribution rate from 6% to 8%. Aharonovich rejected calls from professional bodies to cancel or soften this reform, deeming it unlikely given the current budget situation, but pledged to study its economic impact in 2027 for possible adjustments.

Additionally, the revival of property tax on undeveloped land, abolished in the early 2000s, is being considered. Aharonovich supports this, calling the original tax's cancellation a mistake. The undistributed profits reform, which took effect in January 2025, mandates that private companies distribute a portion of accumulated profits or pay tax on them. Despite business resistance, this reform has already generated tens of billions of shekels for the state.