Will tax exemption for imports lower local prices?

Israeli consumers will be permitted to import goods and services via the Internet worth up to NIS 1,200 tax-free.

Money 311 (photo credit: Bloomberg)
Money 311
(photo credit: Bloomberg)
The head of one of Israel’s largest electric appliance retailers cautiously welcomed the government’s approval of a tax exemption for personal imports on Sunday, but said it wouldn’t cause local chains to reduce their own prices.
Under the government order, which will come into effect once Finance Minister Yuval Steinitz signs it, Israeli consumers will be permitted to import goods and services via the Internet worth up to NIS 1,200 tax-free. The order does not apply to alcohol and tobacco products.
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Rafi Friedman, CEO of electronics chain Brimag Digital Age, said his salespeople would continue to do their best to match offers that customers find on the Internet, but he rejected an all-inclusive reduction in store prices.
“Every customer who comes to us is interested in purchasing as cheaply as possible. One brings evidence from a [rival] store they visited five seconds earlier, the second shows us cheaper products from the Internet, the third bases his decision on information from a friend, and the fourth just makes things up,” Friedman told The Jerusalem Post.
He added: “The competition from the Internet is already fierce. I think many products can be found cheaper in Israel than on the Internet, but if somebody finds something cheaper abroad – then good for them.”
Friedman, who is chairman of the Federation of Israeli Chambers of Commerce’s electrical imports division, said the tax exemption would benefit consumers, “which is not a bad thing.”
But he said he believed the government went too far in introducing an across-the-board exemption, and suggested it should appoint a body such as the Standards Institution of Israel to approve which products can be imported tax-free.
If a product is found to meet local standards and a consumer can find it for cheaper overseas, “that is, in my eyes, legitimate,” Friedman said.
The problem with allowing all products into the country, he said, “is that somebody can purchase something from Zimbabwe which he thinks is the same product [as that available in Israel], but in the end he might receive something totally different.”
Consumers could fall victim to deception, their purchase might be unsafe, or they might even buy an electrical appliance with the wrong voltage, he said.
Retailers have little to worry about if a report on Israel’s Internet economy released in March by global management consulting firm McKinsey is any indication.
The report found that Israelis purchased only NIS 4 billion worth of goods and services, or 0.5 percent of GDP, over the Internet in 2009 – a relatively low figure for a developed economy – despite being well-connected to the Net. In the same year, Israelis purchased around NIS 20b. worth of goods and services – a relatively high figure – at bricks-and-mortar outlets after first researching their products online.
Israeli Consumer Council economist Shlomi Dagan called the tax exemption “a minor victory for the consumer,” saying it “would enable consumers to purchase products, mainly electronics, from abroad at a huge percentage less than in Israel.”
Dagan told the Post that his consumer advocate organization receives frequent reports of outrageous gaps between the price of a product in Israel and abroad. He gave the example of a consumer who was quoted NIS 200 by an Israeli store for a laptop adapter, but who then found the same adapter for $8 (NIS 30) overseas.
“We hope the expansion of overseas purchasing possibilities will prevent chains from abusing the fact that the supply of some products is limited,” Dagan said. “However, it must be remembered that there isn’t a great variety of products one can purchase from abroad, and they don’t cover a large portion of household expenses. As such, many consumers recoil from purchasing goods over the Internet.”