Israel Tax Authority Launches Real-Time VAT Reporting and Daily Settlement System
The Israel Tax Authority is advancing a new initiative called "Invoice Israel 2.0 - Online VAT," aiming to overhaul the current VAT reporting and payment system by implementing a real-time digital collection infrastructure. This reform addresses structural flaws in the existing model, which has been in place for nearly 50 years, by shifting to automatic reporting and attempting to reduce tax fraud.
Currently, VAT is an indirect tax collected along the production and marketing chain, with businesses required to remit the net VAT difference monthly or bimonthly based on invoice issuance dates, regardless of actual payment receipt. This system creates cash flow challenges for businesses operating on extended credit terms, as they must pay VAT before receiving customer payments, and imposes bureaucratic burdens due to manual invoice collection and data entry.
The new model links VAT payment to actual cash flow, requiring VAT to be paid only when funds are deposited in the business’s bank account. For installment transactions, VAT payments will be split accordingly. This real-time settlement eliminates the need for businesses to finance VAT during credit periods and replaces consolidated monthly payments with daily automatic reconciliations. The Tax Authority will centralize all transactions in a digital account dashboard, similar to a banking app, enabling direct and immediate VAT refunds when applicable.
Implementation depends on completing relevant legislation and technological infrastructure upgrades, with no set start date yet. The reform also targets fictitious invoices, which cause an estimated annual revenue loss of about 15 billion shekels, by separating VAT payments: buyers pay suppliers the net price while transferring VAT directly to the Tax Authority, which issues a digital payment approval number to validate invoices and prevent VAT evasion.
This approach improves upon the previous reform that mandated computerized approval numbers for invoices over 5,000 shekels but was circumvented by splitting transactions below the threshold, resulting in significant unreported VAT. While the new system enhances transparency and protects legitimate buyers, it may not fully eliminate collusive fictitious invoicing. Full effectiveness requires mandatory digital allocation of all transactions from the first shekel.
VAT collection is a major revenue source for Israel, totaling 143.3 billion shekels in 2024 (about 30.2% of government tax income), with projections of 145.5 billion and 167.2 billion shekels for 2025 and 2026 respectively. The online infrastructure aims to stabilize VAT revenue while reducing bureaucratic burdens on businesses.
