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The Federation of Israel Chambers of Commerce once again appealed to the government to reduce the valueadded tax to 15 percent from 16.5% and to implement further tax reforms to cut the direct tax rate of low income earners.
"We are obligated to cut VAT, but as a matter of higher priority we need to decrease the tax burden on the lower income working population," Uriel Lynn, president of the FICC said Sunday in his call to Finance Minister Avraham Hirchson.
In response, the Finance Ministry said the reduction of direct taxes was under discussion along with all macro-economic issues, including its policy related to indirect taxes.
"Following deliberations of the ministry and consultations with Bank of Israel Governor Stanley Fischer, recommendations will be presented to Finance Minister Hirchson for inclusion in the 2007 budget," the Finance Ministry said.
In 2005, the Knesset passed a NIS 11 billion tax-reform program whereby VAT was cut from 17% to 16.5%, effective at the beginning of September.
Under the program, the tax rate (including taxes for national health) for those earning between NIS 4,170 and NIS 7,420 (the third tax bracket) would stand at 29% by 2010, down from its current level of 34%. This would be a 15.5% leap from the tax level in the second bracket for earners between NIS 3,480 and NIS 4,170, the FICC said. The tax rate of income earners in the fourth bracket (between NIS 7,420 and NIS 11,140) would be reduced to 37%, from 41% in 2006 - representing a jump of 8% from the third tax bracket. In contrast, the differential between the higher tax brackets is only 5% at the most.
Lynn was reiterating his preelection appeal, urging Hirchson to classify the direct tax rates in a more measured way.
The FICC proposed that by 2010, the tax rate in the third bracket be reduced to 21% (instead of 29%) and that the fourth tax bracket rate should stand at 30% instead of the intended 37%.
"This situation requires correction because 30% of all wage earners in the economy fall in the third and fourth tax brackets, [where the biggest tax jumps occur]," Lynn said.
Lynn's call follows reports in the Hebrew press that the Finance Ministry will try to cut taxes by NIS 4.5 billion annually, with the first reductions taking place as soon as next month.