Despite implications of the Second Lebanon War, Government revenue from taxes grew 5.1 percent in 2006 from 2005 as a result of the Israeli economy's continued growth - a reality the Finance Ministry said will allow for more flexibility in the shaping of its tax policies.
The yearly tax report, released Sunday, examines government tax policies, new tax developments and provides an international comparison with OECD countries.
Last year, according to the Ministry, the National Insurance Agency and municipalities, together, collected a total of approximately NIS 233 billion, representing 37% of the GDP (Gross Domestic Product), while the government earned NIS 32b., or 5.1% of GDP, on taxes collected from corporations.
"Over the last five years, the government has altered its tax system to be more competitive and more encouraging of growth," the ministry said, noting in its report that it has reduced tax on Israeli corporations from 36% to 31.5%. "Additionally, over that time, we have reduced the level of taxes on individuals, including income tax, national insurance and health tax from 60% to 49% and by 2010 plan on decreasing company tax to 25% and taxes on individuals to 44%."
Companies in the manufacturing sector, led by the Iscar Metalworking Corporation, which had to pay some $1b. in taxes following its sale to the American investor Warren Buffett, paid the most tax to the government last year.
Taxes collected on car-related purchases, including purchase tax, customs and gas tax, totalled some NIS 20b. or less than 5% of the GDP. The Finance Ministry said in its report it intends to lower the purchase tax on cars to 72% by 2010.
According to the ministry, when last compared in 2005, 36.8% of Israel's GDP was comprised of tax revenues, as opposed to OECD countries where it was 32.2%, on average. Israelis in 2005 also earned less than most citizens of OECD countries, the report stated, with an average yearly salary of $26,000, good enough to place it only 22nd out of 31 OECD countries.
Additionally, despite the reduction in taxes on Israeli corporations to 31.5%, this was still considerably higher than the 28% corporate tax paid by companies in the OECD.