Israeli Tax Authority Demands Yeshivas Bar Draft Dodgers to Retain Donor Tax Benefits

The Israeli Tax Authority has issued new requirements for yeshivas and religious institutions seeking to maintain approval under Section 46 of the Income Tax Ordinance, which grants tax credits to donors. In a letter sent last week and published on Monday, these institutions must declare that none of their students have been called for military service without properly regularizing their status with the Israel Defense Forces (IDF). They must also submit an Excel file listing all students for the relevant academic year, including names and ID numbers, and commit not to accept students who have not resolved their military status in the future.

The Tax Authority explained that tax benefits should not be granted directly or indirectly to support draft evasion. The letter requires a board member authorized to sign on behalf of the institution to certify that no students fall under this category and that none will be admitted going forward. The deadline to submit the declaration and student list is October 11, 2026. Failure to comply or respond in writing may result in losing Section 46 approval.

This move follows a recent Supreme Court petition filed by the "Free Israel" movement, which argued that tax credits for donors effectively provide indirect public funding to institutions harboring draft evaders. The petition noted that in 2023, four yeshivas alone cost the state over 24 million shekels in tax benefits. The government largely accepted this position and pledged to stop granting or renewing Section 46 approvals to such institutions, potentially revoking existing ones. The court ruled the petition was exhausted without ruling on implementation details.

Earlier, State Attorney Gali Baharav-Miara stated the government cannot continue indirectly funding religious institutions with draft-dodging students through donor tax credits, aligning with the Supreme Court's prohibition on direct funding. The loss of Section 46 status could significantly impact yeshivas financially, as it reduces the attractiveness of donations by eliminating a 35% tax credit for donors.

The Tax Authority’s policy links students’ compliance with military service obligations to the institutions’ eligibility for donor tax benefits, viewing continued benefits as indirect support for draft evasion. The issue has sparked political controversy, with former Finance Committee chairman MK Moshe Gafni threatening to block approvals for hundreds of other nonprofits in protest against excluding yeshivas with draft-dodging students from Section 46 benefits. This dispute delayed a Finance Committee vote on tax approvals for nonprofits.