Why Israel Should Abolish the Betterment Levy
The article argues that Israel’s betterment levy, originally meant to help local authorities finance development by taxing the increase in land value created by zoning approvals and building permits, has become a major obstacle to construction and transactions. According to attorney Alon Samuel, the system now creates deep uncertainty in real estate deals, delays urban renewal, and can stall projects for years.
The levy is often only determined after planning or licensing proceedings are already advanced, and disputes are common. The article says gaps of millions of shekels can arise between the local committee’s assessment and the landowner’s assessment, and even different appraisers for the same committee may reach very different conclusions. Those disagreements lead to objections, appointment of a deciding appraiser, and sometimes court appeals. The process can take two to three years, during which deals are frozen, permits are delayed, bank financing is put on hold, and large housing projects remain without financial certainty.
The piece gives an example of a developer buying land for a 32-unit building who may later discover that the levy is millions of shekels higher than expected, undermining profitability and potentially forcing the bank to withhold funding or demand the developer cover the gap. It also notes that the levy raises the effective tax burden on real estate sales, because sellers pay 50% of the uplift to the local committee and then still pay capital gains tax to the state, with only a partial credit for the levy. In some cases, it is even imposed on apartment sales based on theoretical rights the seller cannot use.
The article says the burden recently grew further when authorities decided that near metro stations local councils could charge 75% of the uplift, a step the author says will make projects there uneconomic. As an alternative, it proposes abolishing the levy in the Planning and Building Law and instead giving local authorities a fixed share of state revenues from real-estate capital gains tax or income tax, transferred automatically based on the actual sale price. The author says this would reduce litigation, shorten timelines, lower costs, increase housing supply, and encourage investment, especially in urban renewal.
