Leaving the coronavirus lockdown, what's the tax policy?

The Israeli government began a limited lifting of the coronavirus lockdown on April 19. Suppose Israel leaves the lockdown soon?

The Likud-Blue and White coalition agreement of April 20 states on page 1 that the expected new coalition government will promote “economic and state budget programs adapted to the unprecedented pandemic needs. The programs will contain responses to issues regarding employment, concerns of employers and employees, removing unnecessary blocks, economic support to the business sector, freelancers and the charity sector.”

And on page 12 of the coalition agreement, we are promised that within 90 days after the government is sworn in, the state budget for all this will be passed.

But there are no further details. So what measures can we hope for if Israel emerges from lockdown?

The Organization for Economic Cooperation and Development has published a series of pronouncements on how to deal with the coronavirus economic crisis. On the tax front, the OECD secretary-general has published policy suggestions for countries to consider as they start to leave their lockdown. They are helpful, but not binding, on OECD members. We present these suggestions below and comment on where Israel stands.

The OECD suggests temporarily providing more generous welfare payments and income support, including through benefits provided through the tax system, to individuals and workers, including those that are normally not entitled to such payments.

This could include broader access to unemployment benefits, sick leave or family leave, also for self-employed workers, and increasing standard cash benefits delivered through the tax system to offset short-term impacts on lower income households. 

Comment: In Israel, laid-off employees have begun receiving unemployment pay. Some parents, elderly and self-employed have received grants, but company owners have not. We have been promised that the next round of payments will be more generous, but ongoing delay in this regard has been widely criticized.

The OECD suggests waiving or deferring employer and self-employed social security contributions, as well as payroll related taxes. 

Comment: In Israel, the approach adopted is for employers to lay off around one million employees without pay – they then receive unemployment pay, without working usefully.

The OECD suggests speeding up refunds of excess input VAT on expenses.

Comment: This has not happened in Israel.

The OECD suggests deferring payments of VAT, customs or excise duties for imported items (e.g. food, medicine, capital goods), avoiding abuse through careful administration.

Comment: This has not happened in Israel, other than a few days deferral in March. The Israeli Institute of Certified Public Accountants has launched action for equitable relief regarding VAT and other taxes in the Supreme Court.

The OECD suggests adjusting the required advance payments on the basis of a revised expected tax liability that more closely approximates the taxpayer’s likely final tax liability, taking into account the expected impact on business turnover (instead of using last year’s sales or profits as a proxy).

 

Comment: Israeli accountants can already arrange this.

The OECD suggests simplifying procedures for claiming relief from VAT on bad debts.

Comment: Bad debt tax relief is notoriously difficult to obtain in Israel.

The OECD suggests deferring or waiving taxes that are levied on a tax base that does not vary with the immediate economic cycle, e.g. recurrent business property taxes or business turnover taxes.

Comment: Municipal tax relief has been promised in Israel.

The OECD suggests increasing the generosity of loss carry-forward provisions. One option is to turn loss-carry forward provisions into a loss-carry backward provision, where businesses could opt to receive a one-off cash payment that equals their accumulated tax losses multiplied by the statutory corporate income tax rate.

Comment: This has not happened in Israel so far.

In order to reward health workers for working extra hours and in potentially dangerous conditions, governments could partially exempt labor income (e.g. income from overtime) from personal income taxation and social security contributions. In addition, governments could incentivize some retired workers to temporarily re-enter the workforce during the crisis by ensuring that such work does not affect eligibility to their pension entitlements.

Comment: Israeli health workers have not enjoyed tax concessions.

Many Israelis assume that measures were delayed by the Israeli political paralysis over the last year. The expected new government will need to decide on economic measures for Knesset approval and then implement them rapidly. The OECD suggestions may be a useful starting point.