Israel's Finance Committee Approves Tax Breaks for Hundreds of Nonprofits Amidst Opposition

Israel's Finance Committee approved tax benefits for hundreds of non-profit organizations on Tuesday, following a heated debate. The decision came despite opposition from ultra-Orthodox Knesset members who objected to the inclusion of certain organizations due to concerns about draft evasion among yeshiva students. The tax breaks, granted under Section 46 of the Income Tax Ordinance, apply to social non-profits engaged in public welfare, culture, religion, health, sports, science, education, settlement encouragement, and immigrant absorption. To qualify, organizations must have operated for approximately two years and obtained proper management certification.

The tax benefits are not given directly to the non-profits but to their donors. Under Section 46, individuals donating to recognized non-profits are eligible for a tax credit of 35% of the donation amount. For example, a 1,000 shekel donation can result in a 350 shekel tax reduction. In 2026, this benefit applies to cumulative donations exceeding 207 shekels, subject to legal ceilings, making it easier for non-profits to encourage and raise funds.

During the debate, ultra-Orthodox MKs, including Yitzhak Pindrus and Moshe Gafni, voiced strong objections. They argued that numerous ultra-Orthodox non-profits were excluded based on the Attorney General's position regarding yeshiva students eligible for military service. Gafni accused the Attorney General of acting like a "Caesar" and making arbitrary decisions, delaying approvals for two years without proper justification. He demanded that only legally qualified organizations be approved, criticizing the exclusion of entities like a specific non-profit from Sderot.

MK Naor Shiri countered by stating that the opposition had previously held up significant funds with little notice and accused them of holding non-profits hostage. He pointed out that the list included 110 "kollel" (post-graduate yeshiva student) non-profits, challenging the narrative that the opposition was solely being targeted. Shiri emphasized that the delay was due to the government's failure to resolve the conscription law, leading to state institutions being unable to process applications.

Committee Chairman Hanoch Milwidsky explained that the issue wasn't necessarily about non-profits violating the law but a broad directive from the Attorney General affecting many ultra-Orthodox organizations. He mentioned a proposed temporary three-month approval to resolve the backlog, which the Attorney General did not accept. MK Michal Waldiger suggested separating the approval of legitimate organizations from the conscription issue, while MK Ofir Katz, Coalition Chairman, agreed with the criticism of the Attorney General, calling her biased against the right and the ultra-Orthodox community. MK Orit Farkash-Hacohen argued that some organizations were disqualified after cross-referencing names of draft dodgers with non-profit affiliations, urging not to delay funds for legitimate causes like wounded soldiers.

The committee's legal advisor, Shlomit Erlich, acknowledged the unusual timing of the debate but stated that significant work had been done by both the coalition and opposition to compile the list of hundreds of non-profits seeking Section 46 benefits. Gafni ultimately voted against the measure, deeming it a severe blow to democracy.