Israel Plans Stricter Tax Invoice Controls Requiring Allocation Number for Every Transaction

Israel's Tax Authority and Ministry of Finance are advancing significant changes to the "Israel Invoices" reform, aiming to require an allocation number for every tax invoice regardless of amount. The reform, which began in January 2024, initially mandated allocation numbers only for invoices above 25,000 shekels before VAT, but this threshold has been gradually lowered to 5,000 shekels as of June 2026. The next step under consideration is to require allocation numbers from the very first shekel of any transaction, primarily targeting business-to-business dealings.

The reform was introduced to combat the widespread use of fictitious invoices, those without genuine underlying transactions or with falsified details, to fight the black economy and increase tax revenue. Since its implementation, the system has blocked suspicious invoices worth approximately 34 billion shekels, with VAT totaling 6.1 billion shekels from early 2025 to May. Weekly, about 1,000 suspicious invoices from around 150 businesses are blocked, leading to numerous criminal and administrative investigations.

Finance Minister Bezalel Smotrich highlighted the reform's success in increasing state revenues by 16 billion shekels and indicated plans to extend the allocation number requirement to all transactions soon. The Tax Authority's Director, Shai Aharonovitch, noted ongoing efforts to counter new fraud tactics, including identity theft and infiltration of corporate accounting systems by criminal organizations.

Alongside these tax measures, the Ministry of Finance is preparing a broad economic package for the upcoming government, which includes reviewing the tax system structure, potentially eliminating income tax exemptions based on residency, and unifying tax rates. Additional reforms under consideration involve pension savings, regulatory arbitrage among financial products, insurance market regulation, and measures to retain Israel's high-tech workforce amid challenges like AI development and currency strength.

The government also faces pressing civil issues such as education quality and the National Insurance Institute's cash flow crisis, expected to be addressed in the forthcoming legislative framework.