Tourists, foreign journalists, lottery winners could face higher taxes

Economy to contract by 1% in 2009, and grow 1.5% in 2010, says Treasury.

Yuval Steinitz 88 248 (photo credit: Ariel Jerozolimski)
Yuval Steinitz 88 248
(photo credit: Ariel Jerozolimski)
The Finance Ministry is debating the cancellation of a number of tax exemptions, while at the same time levying new taxes in view of a ballooning budget deficit and plans to cut individual income and corporate taxes over the next seven years. Currently, certain services rendered to nonresidents such as hotel stays and car rentals by tourists who pay in foreign currency are not subject to the 15.5 percent value-added tax. The Treasury is considering canceling these tax breaks, in addition to those on some transactions such as exported goods and the purchase of fresh fruit and vegetables, which have historically also been exempt from VAT. The Treasury is also debating raising taxes on mobile phones given out to employees. Furthermore, higher taxes are expected to be imposed on cigarettes and gasoline. On Thursday, Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz unveiled the principles of a five-point economic rescue plan including a multi-year tax reduction plan, which would gradually cut the maximum individual income taxes to 39% by 2016 from the current 46% and corporate taxes to 18% from 26%. However, sources of financing for the implementation of this plan were not disclosed. Much caution has been raised over the implementation and sources to finance the plan amid a record deficit, which is expected to grow to NIS 40 billion this year. The Finance Ministry said at the cabinet meeting on Sunday that the economy was forecasted to contract by 1% this year and to grow 1.5% in 2010. The unemployment rate is expected to rise to 7.6% this year and to 8.5% next year. Other measures under discussion by the Treasury are the cancellation of tax breaks for both foreign journalists and foreign sports players who until now were required to pay a maximum tax rate of 25% on personal income compared with the 46% paid by residents. In addition, tax exemptions on lottery winnings up to NIS 150,000 are also expected to be scrapped. Today only lottery winnings of over NIS 150,000 are taxed, at a rate of 25%. The new measure would tax lottery winnings of more than NIS 5,000 at a rate of 25%, which is expected to add NIS 100 million in revenues annually.