Knesset approves 1.5% corporate tax drop

Lower taxes will help improve Israel's competitiveness, Kahlon says.

January 5, 2016 19:41
1 minute read.
THE TEL AVIV skyline; the area around the city is home to many Israeli start-ups

THE TEL AVIV skyline. (photo credit: REUTERS)

The Knesset on Tuesday passed into law Finance Minister Moshe Kahlon’s corporate tax reduction, which will bring company taxes down to 25 percent from 26.5%.

Kahlon acknowledged that surplus tax revenues in 2015 provided him room to reduce taxes, including Value Added Tax, which dropped from 18% to 17% in October.

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“Reducing the tax burden, structural reforms and fostering investment are the horses that draw the carriage of the economy’s growth,” Kahlon said.

Lower taxes would help improve Israel’s competitiveness, he added.

According to the Bank of Israel’s December interest rate report, tax revenues from the beginning of the year had come in NIS 3.7 billion higher than the seasonal path, some 7.2% higher than the same period in 2014. Even with the VAT reduction in the last few months, VAT revenues were up a nominal 5.2%.

With the deficit targets for both 2015 and 2016 at 2.9% of GDP, the deficit in the 12-month period through November stood at only 2%.

Kahlon’s actions essentially canceled out two major tax increases implemented by former finance minister Yair Lapid, who increased taxes when he came into office to fill an unexpectedly large deficit he inherited from the previous finance minister, Yuval Steinitz.

Though Tuesday’s measure was passed into law a few days after the new year, it will be rendered effective for all of 2016.

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