Prof. Manuel Trajtenberg.
(photo credit: Mark Neiman / GPO)
Not so long ago, in the summer, we saw demonstrators in tents around Israel
demanding social justice.
There are now similar demonstrations in New
York and London.
In Israel, the Trajtenberg Commission toiled long and
hard looking into the situation and making recommendations. And now a bill has
just been published for deliberation by the Knesset. The bill proposes to raise
our taxes. We think this is to pay for social-justice measures, but they aren’t
spelled out in the bill.What is proposed in the bill?
Here is an
overview of what the bill proposes starting in 2012.
• For individuals, a
new higher tax bracket of 48 percent is proposed, for all income above NIS
40,000 per month, or approximately NIS 480,000 per year. Currently personal
income-tax rates range up to 45%.
• For personal income above NIS 1
million per year, an additional 2% special surcharge is proposed, making the
proposed top rate 50% for individuals.
• Fathers would receive extra
“credit points” (personal tax allowance) for each child aged under four: one
point in the year of birth; two points in each of the next two years; one point
in the year the child reaches three years old.
• For companies, it is
proposed to increase the regular rate of company tax from the current 24% to
• The tax on dividends, capital gains and land appreciation will go
up 5% under the proposals.
The regular rate will increase from 20% to
25%. The rate for major shareholders (holding 10% or more) will increase from
25% to 30%.
• As a transitional measure, the new rates will apply to the
pro rata portion of capital gains arising after the rate increase, on a
time-apportionment basis. However, investors in publicly traded securities and
“exempt” mutual funds (the investor pays tax, not the fund) may elect in
December 2011 to sell and repurchase them at market value; this is sometimes
known as “bed and breakfast.”
The result must be a gain, not a loss, and
it seems you must sell all of a particular kind of security, not necessarily the
• The advance payment due on account of
land-appreciation tax for most taxable Israeli real-estate deals will increase
from 7.5% or 15% to 9.5% or 18.5% under the proposals. The lower rate applies if
the seller bought the real estate after November 6, 2001. The advance payment is
due once 40% of the consideration is paid.
• A decrease is proposed in
National Insurance Institute upper-income limits for employees and the
self-employed from nine times the national average wage to five times (about NIS
40,000). This is to discourage people from setting up companies and paying less
taxes. Nevertheless, a company is often a good idea.
• Future legislated
tax reductions for companies and individuals have been eliminated.Tips
to keep in mind
First, watch the progress of the proposals. They have yet to be
reviewed and enacted into law.
The tips below assume the proposals become
effective in 2012.
• Accelerate bonuses, dividends, interest payments and
capital gains where possible – before tax rates rise.
• There are
apparently no provisions relating to stock-option taxation, contrary to earlier
fears of a tax rise.
• Operating as a company may still be preferable to
operating as a self-employed freelancer. Tax rates on distributed profits of
both will approach 50%, but there may still be NII savings on dividends, albeit
up to a lower-income limit. And companies confer limited liability.
Consult your securities adviser about the possibility of a “bed and breakfast”
for publicly traded securities.As always, consult experienced tax
advisers in each country at an early stage in specific
firstname.lastname@example.org Leon Harris is a certified public accountant and tax
specialist Harris Consulting & Tax Ltd.