Value added tax increase delayed by one month

Steinitz decides to delay implementation of tax hike to give businesses time to prepare.

July 31, 2012 14:35
2 minute read.
Finance Minister Yuval Steinitz

Finance Minister Yuval Steinitz 370. (photo credit: Marc Israel Sellem)

Finance Minister Yuval Steinitz decided Tuesday to postpone the one percent rise in value-added tax by a month, following consultation with Knesset Finance Committee chairman Moshe Gafni.

VAT was supposed to rise from 16 to 17 percent on Wednesday, August 1, but the increase will now be implemented on September 1 in order to allow businesses time to prepare, the Treasury said.

The cabinet approved the VAT increase Monday as part of a series of sweeping austerity measures that it hopes will raise NIS 14-15 billion next year and reduce the budget deficit by 1.5%.

The austerity package included a 1% income tax hike for those earning NIS 8,881-41,830 per month, 2% surtax for all income above NIS 67,000 per month and across-the-board expenditure cuts.

The Knesset will vote next Monday on the legislative measures contained in the package, including a proposed amendment to the Law for the Encouragement of Capital Investment, which would allow for tax collection from large corporations that benefit from specific arrangements with the state.

Prime Minister Binyamin Netanyahu told Channel 2 Tuesday night that the government has done a lot for the middle class, but that it also needs to worry about state revenues.

“We declared free education for children aged three and up, we brought about a reduction in cellphone rates and hundreds of shekels in tax credits per month for families. We added to spending on doctors, police and much more,” he said.

In a separate interview with Channel 1, Netanyahu added that maintaining a vibrant economy is the most significant type of social justice.

“I have a responsibility to watch over the economy, and that is the most important kind of social justice,” Netanyahu said in defense of the government’s decision to cut budgets and raise taxes.

Society’s weakest sectors would only be affected by 3% of the approved tax increases, Netanyahu argued, highlighting that capital gains, corporate tax and taxes on the wealthy accounted for a majority of the NIS 14-15 billion in new government revenues.

Relative to the crisis in Europe, stagnation in the US and slowed growth in China – all factors Netanyahu cited as dragging down Israel’s export-based economy – Israel has still been doing rather well, the prime minister said.

“Why is the economy good? Because we managed it properly!” Steinitz admitted before the cabinet vote that the much-criticized reforms were “not enjoyable,” but stressed that the government must show it will meet next year’s 3% deficit target and maintain Israel’s “good image” as an island of economic stability and place for investment.

Labor leader Shelly Yechimovich said in a press statement that the decision to postpone the VAT increase by one month is the latest evidence of Netanyahu and Steinitz’s “indecisive behavior.”

“This is further proof that their economic decrees were drafted out of panic and that now they are being carried out with negligence,” she said. “The frequent changes are creating a feeling of instability in the economy.”

“On top of the fact that this is clearly an unjust tax, Netanyahu and Steinitz’s confusing behavior is dangerous, slows down business activity, reduces planning times and manufactures a complete distrust in Israel’s economic leadership,” Yechimovich added.

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