Knesset's Finance Committee passes a heavily amended 3rd apartment tax bill

The bill, which addresses the taxing of owners of three or more apartments, has already sparked controversy across the country.

December 16, 2016 13:21
3 minute read.
The knesset

The knesset during the boycott on Oct. 31, 2016. (photo credit: MARC ISRAEL SELLEM)

The Knesset Finance Committee on Friday morning passed what it calls a “softened version” of Finance Minister Moshe Kahlon’s bill to tax owners of three or more apartments.

The vote came after a heated, night-long debate and following the introduction of an array of amendments. The bill will be up for a second and third (final) reading in the Knesset plenum this week as part of the Economic Arrangements Bill that is to accompany the 2017-18 state budget.

“At the end of the day, this bill was formulated and submitted by the Finance Ministry, and the ministry is the body that decides on the tax regulations. All the changes to the bill – softening it – are changes that were originally submitted by the finance minister himself two months ago,” Kahlon’s spokesman Omri Harush told The Jerusalem Post.

According to the Finance Committee’s spokesman Eyal Kazir, however, the bill was only accepted for a vote by the panel after “stubborn negotiations between committee members and the Finance Ministry’s and Tax Authority’s heads.”

Committee chairman Moshe Gafni (United Torah Judaism) stormed out of the committee session around 6 a.m. in protest of the bill and was replaced by MK Miki Zohar (Likud) who then oversaw the vote. At the opening of the committee session on Thursday, opposition MKs objected to the amendments which would soften the text. They then staged a walkout.

“This is one of the worst bills ever. It hurts the weakest citizens and the middle class who save every shekel to purchase apartments in order to leave them as an inheritance for their children,” Gafni said before he left the room.

Kahlon’s original bill, submitted to the committee back in August, called to impose an annual tax on owners of three apartments and more, amounting to 1% of the third and any additional apartment’s value. The original bill capped the tax at NIS 18,000 a year per apartment. It would have also applied to any individual owning a third of an apartment – due to shared inheritance for example.

According to the changes made last week, anyone who owns four apartments can be exempt from the tax altogether, as long as the two extra properties are used as residences and their market value together is not above NIS 1.15 million. As for inherited property, the tax would not apply to anyone who owns less than 50% of an apartment. In another change, the Finance Committee removed the imprisonment option in the criminal sanctions clause; any owner who fails to report extra properties will only receive a fine, one that can be as high as thrice the tax owed on the unreported apartments.

Additionally, in order to discourage people from buying housing units for investment purposes rather than to live in them, a change to the bill seeks to encourage investors to sell their “extra” apartments to young families. According to the Finance Ministry, any investor who sells an extra apartment to young families – couples under 36 – or to individuals wishing to improve their housing conditions, by October 1, 2017, will receive a tax rebate of up to NIS 75,000 on property capital gains tax they have paid in the past.

“I am certain that this change that I initiated will fill the market with tens of thousands of apartments suitable for young couples and will bring a decrease in housing costs countrywide,” said Zohar, who reportedly spearheaded the property capital gains tax amendment.

Kahlon’s spokesman begged to differ.

“The property capital gains tax clause has been a Finance Ministry plan for a while, but now everyone wants to say that they initiated it. Every MK wants to take credit and have his name in the papers, and that’s okay, that’s how it works,” Harush told the Post.

The legislation previously aroused opposition from apartment owners, some of which threatened to raise the rent they charge if the bill passes.

A amendment to the legislation, submitted by MK Roy Folkman (Kulanu), was approved, according to which property owners will be forbidden to add a clause to rental agreements that would raise the rent should the bill pass. The amendment will also retroactively cover contracts written and signed since the bill was first made public in 2015.

“It’s inconceivable that property owners are holding the renters hostage during this critical period when we are trying to free up the supply of housing units in areas of high demand for young Israelis,” Folkman told the committee.

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