Israeli Tax Experts Warn Broad Tax Incentives Create Unfair Competition Amid Calls for Reform

Ahead of the upcoming Duns 100 Tax Leaders Forum on September 2, leading Israeli tax attorneys discussed pressing issues facing Israel's tax policy. The debate centers on whether tax incentives are needed for high-tech companies amid a low dollar exchange rate, necessary adjustments to the Contained Profits Reform, and strategies to increase tax revenue without harming economic growth.

The Contained Profits Reform, implemented in early 2025 to increase tax collection, has faced criticism for its complexity and uneven application. Experts like attorney Haya Abisror Shimoni argue the law causes chaos and unfairly penalizes companies investing in growth, suggesting simpler, clearer rules with exemptions for investments in fixed assets, R&D, and human capital. Other experts, including Rani Schwartz and Meir Nosbaum, call for fundamental changes to the reform or even a freeze, emphasizing the need to protect private companies and avoid harming Israel's middle class and entrepreneurs.

Regarding the low dollar exchange rate's impact on Israeli high-tech firms, experts caution against broad tax breaks for foreign companies, which create unfair competition with Israeli firms paying full taxes. Instead, they recommend regulatory stability, alignment with international tax standards, and targeted administrative solutions to mitigate currency risks. Suggestions include allowing companies operating solely in foreign currency to pay taxes in that currency and easing bureaucratic hurdles.

With ongoing conflict increasing state budget needs, experts warn against raising taxes on the productive middle class or imposing broad new taxes like inheritance or property taxes without safeguards. They advocate focusing on improving tax enforcement, closing loopholes, combating the black economy, and enhancing tax collection efficiency. Measures such as fast-track dispute resolution and updated voluntary disclosure programs could boost immediate revenue without stifling growth.

Overall, the consensus among Israel's top tax lawyers is that tax policy must balance the state's fiscal needs with creating a stable, predictable, and fair business environment that supports long-term investment and economic resilience.