Israel Collects 1.83 Billion Shekels from Foreign Worker Taxes Amid 500 Million Shekel Loss from Unreported Cash Payments

In 2024, approximately 242,000 foreign workers in Israel paid a total of 1.83 billion shekels in income tax, according to data revealed by the Knesset's Special Committee on Foreign Workers. Despite this substantial revenue, the committee highlighted a significant tax loss, particularly in the construction sector, where unreported cash wages could be causing the state to lose up to 500 million shekels annually.

Eden Bitkover, advisor to the Israel Tax Authority director, detailed that foreign workers earned around 17.1 billion shekels in total wages, with an average tax rate of only 10.6%. The caregiving sector showed the lowest tax rate at just 2.2%, largely due to employers paying additional wages in cash without withholding taxes as legally required. This practice creates a gap between reported and actual wages.

The construction industry faces the most severe issue with unreported cash payments, sometimes accompanied by fake invoices. The Tax Authority estimates that if foreign construction workers receive an average of 3,000 shekels monthly in unreported cash, the tax loss reaches 200 million shekels yearly. However, if the unreported amount is closer to 7,000 shekels per month, the loss could soar to 500 million shekels.

Criticism arose regarding tax credit benefits granted to foreign workers, with attorney Yonatan Yakubovich from the Israeli Immigration Policy Center calling these benefits unjustified, estimating their cost at over 500 million shekels annually. Attorney Zvi Ken-Tor from the Israel Bar Association estimated total state revenues from foreign workers, including taxes and fees, at 7 to 8 billion shekels per year but criticized insufficient enforcement efforts by the Tax Authority.

Elisha Yifrah from the Federation of Israeli Chambers of Commerce urged reducing fees on employing foreign workers, arguing that such a move would boost economic activity and tax revenues. The Knesset committee concluded by calling on the Finance Ministry and Tax Authority to reassess tax credit policies for foreign workers and to intensify enforcement against employers paying wages in cash, including targeted inspection campaigns. The issue reflects a global challenge of balancing economic needs with security considerations regarding foreign labor.