Israeli Supreme Court Reviews Tax Benefits for Donors to Haredi Yeshivas Amid Draft Evasion Concerns

The Israeli Supreme Court is currently deliberating a petition challenging the tax benefits granted to donors of Haredi yeshivas where students evade mandatory military service. The petition, filed by the organization "Free Israel" and represented by attorneys Dr. Hagai Klay and Gal Brir, argues that following a prior court ruling prohibiting state funding of yeshivas with draft-dodging students, tax benefits to donors effectively constitute indirect public funding and should be revoked. According to the petitioners, institutions facilitating draft evasion cannot be recognized as "public institutions" eligible for such benefits, and in 2023 alone, four yeshivas received over 24 million shekels in tax advantages.

The Attorney General, Gali Baharav-Miara, supports the petitioners' position, stating the state must not indirectly fund institutions where draft-eligible students fail to regularize their military status, thereby encouraging evasion. She instructed the Tax Authority to develop mechanisms to identify relevant yeshivas by cross-referencing student lists with military data. Consequently, the Tax Authority has begun requesting declarations from yeshivas regarding the presence of draft-dodging students, with institutions found to have such students at risk of losing their tax benefit eligibility.

In contrast, Finance Minister Bezalel Smotrich opposes revoking the benefits, favoring maintaining existing approvals despite the students' military status. However, following the Attorney General's directive, the Finance Ministry and Tax Authority are preparing to implement policy changes. Meanwhile, MK Moshe Gafni of the Degel HaTorah party has initiated efforts in the Finance Committee to prevent tax exemptions for hundreds of nonprofit organizations, aiming to counteract the tax benefits tied to draft evasion.

The case centers on approvals under Section 46 of the Income Tax Ordinance, which allow donors to receive partial tax credits for their contributions, effectively amounting to indirect public funding. The Supreme Court's decision will determine whether such tax benefits can continue for yeshivas associated with draft evasion, reflecting broader tensions over military service exemptions in Israel's Haredi community.