The Interior Ministry on Sunday approved an across the board 3.08 percent increase in municipal tax rates, or arnona, on individuals and businesses for 2006, which will apply retroactively from January. "In principle, we believe that the 3.08% increase in the municipal tax rate over last year includes an element of efficiency," Uriel Lynn, President of the Federation of the Israeli Chambers of Commerce told The Jerusalem Post. "However, what is important is that the tax rate will be applied uniformly." The municipal tax tariff for 2006 was calculated according to a new formula taking into account the increase in cost of living and increase in cost of salaries in the public sector. "The calculated tariff is transparent and reflects the costs of local authorities, which enable them to be more efficient," the Manufacturers' Association of Israel said. The FICC's Lynn agreed that the formula was the right one for calculating the tariff for municipal taxes, but demanded that the tariff be fixed on a permanent basis and not reset annually. The renewed municipal tax, which was passed as part of the Economic Arrangements Bill, ratified last week, exempts religious and Haredi education institutions from paying council tax. Under the regulation for 2006, local authorities will be allowed to file special requests for exceptional municipal tax rates above or below the maximum tariff increase of 3.08%. The final decision on exceptional increases will be made by the Minister of Interior together with the Minister of Finance. "In the past differentiated municipal tax rates were applied in the business sector in particular in the trade and services sector," said Lynn. "Decisions on exceptional tariffs lacked public transparency as they were only passed by the Ministry of Finance without going through the Knesset." In 2005, 39 local authorities of the 132 authorities requesting increases were allowed to raise their tax levels on businesses beyond the consumer price index in 2005. According to the FICC, the local authorities concerned, on average, raised the arnona payment 5.5% in 2005, costing the business sector NIS 52 million in additional taxes during the year. Yehud increased its 2005 municipal tax rate by 10%, Yokneam Illit raised it 9%, Yavneh 7%, Jerusalem 5%, and Eilat 4%.