Israel Urged to Extend Tax Incentives to Domestic Manufacturers Beyond Exporters
The fluctuating shekel-dollar exchange rate significantly impacts Israeli manufacturers' decisions on investing, expanding production lines, or relocating operations abroad. While a weaker dollar reduces costs for imported raw materials and machinery, it simultaneously erodes export revenues and challenges Israeli producers in competing globally and against imports in the local market. Although the government cannot directly control exchange rates, it can influence industrial investment through tax policy, particularly corporate tax rates.
Currently, Israel’s tax incentives primarily benefit exporters, leaving domestic manufacturers, who supply essential goods like food, medicine, packaging, construction materials, medical equipment, protective gear, industrial components, and chemicals, without comparable support. This disparity is seen as a distortion, as local production is vital for national resilience, ensuring hospitals, food chains, construction sites, and other factories continue operating amid global supply disruptions, rising shipping costs, or closed borders.
Domestic manufacturers contribute to employment across Israel’s periphery and center, support numerous small businesses in supply chains, and provide strategic flexibility when international markets are less accessible. The absence of supportive tax policies risks delayed investments, shrinking production lines, lost job opportunities, and the transfer of industrial knowledge abroad, ultimately increasing dependence on imports, shortages, price hikes, and slower crisis recovery.
The article advocates for a preferential corporate tax regime for non-exporting manufacturers, contingent on clear commitments such as investing in machinery and production lines, improving productivity, training workers, sourcing locally, and maintaining operations in Israel. This approach would be a negotiated exchange: reduced taxes in return for greater investment, quality employment, and enhanced Israeli manufacturing capacity.
Foreign investors consider factors beyond labor costs and land prices, including tax certainty, skilled labor, infrastructure, and local suppliers. Israel should not penalize companies producing for its domestic market but rather recognize local manufacturing as a strategic asset. A transparent, stable, and criteria-based tax framework is essential, providing manufacturers with long-term certainty for investment decisions rather than one-time grants subject to budget changes. Such policy would help retain existing investments and attract new ones, strengthening both export and domestic production sectors. The piece is authored by Rubi Ginel, CEO of the Manufacturers Association of Israel.
