Your taxes: Supreme Court defeats home tax

The Supreme Court judgment runs to 127 pages, and it will go down in history as a commentary on Israeli democracy as a whole.

US tax form (illustrative) (photo credit: INGIMAGE)
US tax form (illustrative)
(photo credit: INGIMAGE)
The Supreme Court, sitting as the High Court of Justice (Bagatz), issued a landmark decision on August 6, canceling the controversial new multi home tax (Bagatz 10042/16 et al).
This decision was made on account of procedural reasons due to a serious defect in the way the tax was hastily enacted as part of the 2017-18 budget law.
It followed an earlier temporary injunction issued by the Supreme Court on March 1 of this year, requiring the Knesset to explain what happened by March 23. It’s been months of waiting since then for the final judgment.
The Supreme Court judgment runs to 127 pages, and it will go down in history as a commentary on Israeli democracy as a whole.
The proposed tax:
The Multi Home Tax was intended to impose a tax on the owner of 2.49 homes or more in Israel at the rate of 1% of their prescribed value, excluding two homes chosen by the taxpayer, but not more than NIS 18,000 per home per year. There was much criticism that three cheap apartments in Beersheba, for example, would trigger the tax, but one luxury mansion in Herzliya Pituah wouldn’t.
The facts – one big rush:
The budget bill containing the proposed tax passed its first Knesset reading on November 2, 2016. And on November 21, the all-important Knesset Finance Committee held its first debate.
But then the Finance Ministry issued a revised bill on November 30, again on December 11 and twice more – in one day – on December 15. The last of those bills was circulated among Knesset Finance Committee members in the evening at 9:00 p.m., while they debated another matter.
The debate on the last bill began around midnight despite objections from some MKs that they hadn’t studied the lengthy text and were exhausted from the previous day’s debate which ended at 3 a.m. The Finance Committee chairman didn’t stop the debate and opposition MKs left in protest.
Seven hours later, at 7:05 a.m., the Finance Committee “approved” the bill for the second and third readings in the Knesset – a formality which duly occurred late at night on December 21.
What’s wrong with that?
Multiple complaints were voiced that this rapid turn of events allowed no time for MKs to study the law, get legal input or even participate properly in the debate.
The appellants claimed the legislative procedure was rushed, late and defective. There was no consultation on the amended text with the public nor professional bodies such as the Law Society or Certified Public Accountants’ Institute. A request for another debate in the Knesset was turned down. Most importantly, the democratic principle of participation (i.e. representation) was breached.
Moreover, some members of the Finance Committee, who initially opposed the multi home tax, later voted for it after receiving special budget allocations for other things.
On the other hand, the government claimed that the multi home tax was needed without delay to help stem home price rises. Moreover, the same bill promised home sellers a partial tax refund if certain conditions were met, and some had already applied for their refund.
The judgment:
The judgment reviews the legislative process and the vital principle of participation in many Western countries. Following are some of the Court’s comments in paragraphs 90-97 of the judgment: A review of the debate minutes of the Finance Committee reveals that all the time, the government representatives, including some coalition members and even the chairman pushed the MKS again and again not to create difficulties, not to ask questions, investigate or demand anything. They did so to reach as quickly as possible their objective – approval of the bill.
Many times, when the MKs raised questions and issues, coalition members cut them off and carried on reading out the bill.
The clear sense was one of haste, pressure and rush. In such an atmosphere, MKs had no real possibility to think, express an opinion, hold minimal debate worthy of the name regarding specific tax arrangements in the bill.
Moreover, the proposed multi home tax laid on the table of the Finance Committee is not something demanding haste and casual treatment. It is a complex and substantial subject... setting up a brand new tax.
On the one hand, the tax arrangement would impose significant financial costs on taxable home owners.
On the other hand, the tax arrangement raises hope of an improvement in one of the key issues in the economy and Israeli society at present – home prices.
The verdict:
Given the situation described above, the Supreme Court ruled that the principle of participation was seriously impacted and it had no alternative but to rule that the legislative process was fundamentally flawed and the tax is canceled.
What happens next?
Finance Minister Moshe Kahlon is reportedly interested in re-legislating the multi home tax. If so, the Supreme Court has ruled that proposals must go back to the Knesset Finance Committee where things went wrong to be re-enacted.
The Supreme Court essentially upheld the American principle of “no taxation without representation.” Another Boston tea party has begun, it remains to be seen how it ends.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.