Tax Authority Chief Warns of NIS 40 Billion Budget Deficit Amid Political Instability

Shi Ahronovitch, Director of the Tax Authority, has warned of a significant budget deficit, estimated between NIS 30 to 40 billion, exacerbated by ongoing political instability and the absence of a state budget. Speaking at a real estate conference in Eilat, Ahronovitch stressed the critical need for a stable government and coalition to be formed quickly, noting that markets are already pricing in the scenario of a year without a budget, which he described as unhealthy.

Ahronovitch also outlined potential measures to increase state revenue. He suggested a 10% tax on rental income from the first shekel as a balanced approach, emphasizing the need for reporting obligations to capture those currently outside the tax system, estimating this could yield at least NIS 1.5 billion annually. Furthermore, he cautioned that further elections could extend the validity of the higher purchase tax for investors, currently set to expire on February 10th, potentially by an additional three to four months.

While the Ministry of Housing and many in the Treasury favor maintaining the purchase tax rates at 8% and 10%, Ahronovitch indicated a willingness to consider reductions if the housing market crisis deepens. He noted that the decline in apartment sales is already impacting VAT and income tax collections, and that emergency measures would be considered if the situation deteriorates further.

To combat tax evasion and the black market, Ahronovitch presented the 'VAT Online' initiative, which aims to collect VAT upon receipt of payment. He conservatively estimates this measure could generate an additional NIS 7 to 8 billion annually and would also aid in the fight against protection rackets.