Israel Considers Removing 200 Shekel Note to Combat Tax Evasion

An Israeli proposal to eliminate the 200 shekel banknote, the country's largest denomination, has sparked debate between the Tax Authority and the Bank of Israel. Accountant General Maged Karam explained that the proposal, aimed at reducing the black market and tax evasion, could potentially increase state tax revenues by 20 to 30 billion shekels annually. He also noted that such a move could hinder criminal organizations that rely heavily on cash transactions. However, Karam emphasized that the proposal faces significant legal and regulatory hurdles, making its implementation in the near future highly unlikely.

The proposal is part of broader discussions to boost state revenue without imposing new direct taxes on the middle class. Eliminating the 200 shekel note is seen as a potential first step toward reducing cash usage in the economy. The 200 shekel note is the largest denomination, making it significant for large cash transactions and storing money outside the banking system. Reducing its circulation could make it harder to hold large sums of cash, potentially curbing tax evasion and money laundering.

A primary obstacle is the Bank of Israel's exclusive authority over currency. The bank has stated that the proposal lacks sufficient professional justification and that there is no international precedent for completely eliminating cash. Karam stressed that any progress requires agreement between the Bank of Israel and the Ministry of Finance, deeming the note's disappearance in the near future improbable without such consensus.

Supporters of the proposal cite combating tax evasion, money laundering, and criminal organizations as key goals. While reducing cash may create difficulties for these groups, it is unlikely to eliminate their activities entirely. Concerns have also been raised about the impact on populations reliant on cash, such as the elderly and those with limited access to digital payment methods, particularly within the Arab community where cash transactions remain prevalent.

Karam also mentioned other economic measures under consideration, including increased taxes on dividend distributions and a potential renewal of the tax on vacant land, which is seen as a way to encourage construction and increase revenue from property owners. He concluded that a significant shift away from cash would require years, possibly decades, and the development of robust digital payment infrastructure and alternatives.