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Shopkeepers and hotel managers in Eilat breathed a collective sigh of relief after learning visitors and city residents would remain exempt from paying a Value-Added Tax on goods and services purchased in the city's heavily tourism-dependent economy.
A spokeswoman for the Prime Minister's Office confirmed Thursday that a proposal suggesting the exemption's elimination had been removed from the agenda of Sunday's cabinet meeting, though she declined to discuss reasons for the move.
The resort town's political and business leadership had been caught off guard last week when it was announced the VAT exemption would come under fire at the meeting from the PMO and the Tax Authority. Public officials including Eilat Mayor Meir Yitzhak Halevy, Tourism Minister Yitzhak Aharonovich and former finance minister Silvan Shalom have come out publicly against the proposal since it was announced last week.
Eilat became a VAT-free zone in 985, when the Knesset approved the exemption as a way to boost tourism and maintain the population in Israel's southernmost city. Residents and visitors continue to purchase goods and consumer services in the city free of the 15.5 percent VAT included in prices across the rest of the country, and the exemption is considered a key element of the city's appeal to tourists. The exemption has come under attack from time to time by the Tax Authority, which would gain hundreds of millions of shekels in additional revenue if it were restored.
Even without the tax, Eilat tourism officials argue that the city is already threatened by the lower prices of its competitors, particularly neighboring Sinai and Aqaba.