The Federation of Israel Chambers of Commerce has urged the three main political parties to make adjustments to what it called the unfairness in the tax reform, affecting the direct tax rate of low and middle income earners.
In a direct address to Acting Prime Minister and Kadima chairman Ehud Olmert, Likud Chairman Binyamin Netanyahu and Labor Chairman Amir Peretz, Uriel Lynn, president of the FICC, demanded further downward tax corrections in the third and fourth tax bracket affecting people who earn between NIS 4,170 and NIS 11,140.
The parties did not comment on the proposal.
"By the end of the tax reform in 2010, the direct tax rate that they will have to pay will still be high in proportion to their income and relative to the higher tax brackets," Lynn said.
In 2005, the Knesset Finance Committee approved the government's multi-year proposals for tax reform, which will gradually cut the marginal tax rate, including the health tax and National Insurance Institute levy, to a maximum tax rate of 44 percent from the current 49%.
By 2010, the tax rate in the third bracket for those earning between NIS 4,170 and NIS 7,420, would stand at 29%, which is a 15.5% leap from those in the second tax bracket earning between NIS 3,480 and NIS 4,170. The tax rate of income earners in the fourth bracket for those earning between NIS 7,420 and NIS 11,140 would be reduced to 37%, a jump of 8% from the third tax bracket. In contrast, the differential between the higher tax brackets is only 5% at the most.
Thus, Lynn suggested the main parties classify the direct tax rates in a much more measured way, so as to avoid a leap in the direct tax rate, in particular for the low and middle income earners who make up 30% of all wage earners.
"Our proposal is to average out the tax rate for the income range between NIS 4,170 and NIS 11,140. As such, the direct tax rate for the third bracket would be reduced to 21%, while the fourth bracket would levelled to 30% by 2010," Lynn said.
By the end of the process in 2010, the cost of the gradual reduction of direct tax rates would come to NIS 8 billion.