MK Bitan’s Claim on OECD Food VAT Rates Is Inaccurate, Experts Say

MK David Bitan, chairman of the Knesset Economic Committee, proposed lowering Israel’s VAT on basic food products to 8%, citing that in OECD countries the VAT rate on such items ranges between 0% and 8%. However, a 2024 OECD review shows that among 37 OECD countries with VAT, only 19 have rates on basic food products within that range, while 18 others impose higher rates, including five countries, Israel among them, where VAT exceeds 16%. Israel currently applies a 0% VAT only on fruits and vegetables.

Economic experts and Bank of Israel data suggest that Israel’s uniform VAT system is more efficient and equitable than differential VAT rates used elsewhere. Wealthier households tend to consume more expensive products benefiting from reduced VAT, while lower-income households spend a larger share of their budget on food. Additionally, enforcing differential VAT rates involves significant administrative costs and challenges, with Bank of Israel estimating potential revenue losses of 25-30 billion shekels if such a system were implemented.

Bitan clarified that he did not claim all OECD countries have VAT rates between 0% and 8% on basic food. The OECD itself notes that reduced or zero VAT rates are not the most effective means to achieve economic equality or welfare goals. Thus, while Bitan’s factual claim about some OECD countries is partially correct, it overlooks the broader context and complexities of VAT policy and enforcement.

The discussion highlights the challenges Israel faces in balancing tax policy, economic fairness, and administrative feasibility amid rising living costs. The government has so far rejected Bitan’s proposal due to budgetary concerns, and experts caution against oversimplifying international VAT comparisons without considering local economic dynamics.