VAT exemption for online shopping gains support amid cost of living crisis

As part of the steps required to curb the cost of living in Israel, the State Comptroller recommended expanding the VAT exemption for internet shopping from abroad.

 Online shopping illustrative.  (photo credit: ROBBERT NOORDZIJ/FLICKR)
Online shopping illustrative.

Recently, State Comptroller Matanyahu Englman recommended examining the possibility of increasing the amount on which the VAT exemption will be granted for online shopping from abroad. 

Lawyers Eli Doron and Doron Peso, experts in taxation from the Doron, Tikotzky, Kantor, Gutman, Nass, Amit Gross & Co. law office, explain how this is expected to affect consumers.

Today, an Israeli who buys products from websites based abroad for $75 or more is required to pay VAT at a rate of 17%. It may sound like a little, but it adds up. Englman stated that raising the amount exempt from VAT would result in significant savings for the Israeli consumer, but didn't specify a proposed exemption amount, the lawyers said.

The lawyers stated that it's not yet known if the move will actually come to fruition. Englman himself doesn't have the authority to change the amount of the exempt purchase, but the finance minister could, if he wishes, advance the move by signing a decree without a legislative procedure in the Knesset, subject to receiving Finance Committee approval.

The lawyers also said that the move is supposed to be part of the fight against the soaring cost of living and citizens will benefit the most this way. Increasing the amount for which the VAT exemption will be given for online shopping from abroad will allow Israelis to purchase a greater variety of products at cheaper prices, and significantly expand the scope of internet commerce.

 BIG FASHION shopping mall makes merry. (credit: MEITAL SHARABI) BIG FASHION shopping mall makes merry. (credit: MEITAL SHARABI)

Others will be hurt by the move

Doron and Peso warn that there are those who will be hurt by the move. The main victims will be commercial importers, local manufacturers, Israeli industry and small local businesses that will continue to add VAT on the prices of their products, while it will be possible to import some of them at a cheaper price even with factoring in VAT. 

The move is expected to cause damage to local businesses that are very important to the Israeli economy.

Regarding the question of whether the move will indeed lower the cost of living, they explain that it depends on the personal behavior of each and every consumer. 

On the one hand, Israelis will be able to buy products from overseas at a cheaper price than in Israel, as well as products that aren't marketed in Israel at all. On the other hand, it will increase the temptation to buy a lot of worthless junk instead of encouraging people to save extra disposable income.