Dei'ah veDibur - Information & Insight

A Window into the Chareidi World

20 Tammuz 5765 - July 27, 2005 | Mordecai Plaut, director Published Weekly










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Israel Tax Reform Will Cut the Marginal Rate and VAT

by Yated Ne'eman Staff

The Knesset Finance Committee approved the government's multi- year proposals for tax reform for their second and third Knesset readings. The vote was 12:4: Likud, Shinui, the religious, chareidi, and right-wing parties voted in favor; Labor and Yahad voted against.

The bill will gradually cut the marginal tax rate, including the health tax and National Insurance Institute levy, to 44 percent. It will also cut VAT by 0.5 percent, cut the company tax from 34 percent to 25 percent, and grant a one-year exemption on the purchase tax on homes that cost up to NIS 550,000 ($120,000).

During the final committee discussion on foreign trusts and aggressive tax planning, at the Finance Committee's demand, the Ministry of Finance promised to submit for approval within three months the regulations it proposes for levying taxes on creators and beneficiaries of trusts only if they are Israeli citizens.

The Ministry of Finance also agreed to define aggressive tax planning, which would be banned under the new law, in Ministry of Finance regulations that must be approved by the Finance Committee. The ministry agreed to a demand to lower the automatic fine to be levied on tax plans deemed aggressive, as set by the courts, from 50 percent to 35 percent of the unpaid tax.

The following amendments were approved by the Finance Committee:

* The land betterment tax (mas shevach — a capital gains tax paid on apartments) will be cut from 25 percent to 20 percent beginning in 2008, instead of 2010.

* Graduates of universities will receive a half credit point on income taxes for three years after receiving a BA and to two years after an MA. Finance Committee chairman MK Rabbi Yaakov Litzman (United Torah Judaism) broadened the tax break to include all teachers, without explicitly stating that it applies only to university degrees, thereby extending it to graduates of yeshivas, if the courts do not intervene.

* The tax exemption on profits from savings for pensioners will be raised to NIS 7,800 for individuals per year and NIS 11,700 for couples.

* The vesting period for employee options deposited with a trustee so the options-holders will be eligible for a tax break will be cut from 30 months to 24, including for those exercising options given before 2006.


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