Israel Plans VAT Payment Shift to Point of Sale, Raising Business Costs and Consumer Prices

Starting January, Israel will change its Value Added Tax (VAT) collection system so that VAT payments are transferred to the state immediately upon customer payment, rather than at the periodic reporting stage. Currently, businesses collect VAT from customers and hold the full amount in their accounts until they report and remit the net VAT to the tax authority, typically monthly or bi-monthly. This delay allows businesses to use the VAT funds as part of their cash flow.

The Israeli Tax Authority argues this reform aims to combat the black economy by accelerating VAT collection. However, financial expert Ariel Feiglin warns that this shift could harm business cash flow and lead to higher costs for consumers. Businesses may need to cover the VAT gap through credit or loans, incurring interest and financing expenses that could be passed on through increased prices or reduced investments.

Feiglin also doubts the reform will significantly reduce bureaucratic burdens, as businesses will still need to manage invoices, credits, cancellations, partial payments, and tax refunds. She highlights the risk of cash flow mismatches if VAT is collected immediately but expense invoices are processed later. Feiglin calls for a pilot program and clear, rapid refund mechanisms before full implementation to avoid unfairly burdening compliant businesses.

While the government expects billions of shekels to flow earlier into state coffers, Feiglin stresses this is not new revenue but an advance on private sector cash flow. She concludes that what is presented as a technological improvement to reduce bureaucracy may instead become a way for the state to improve its cash flow at the expense of businesses and ultimately consumers.