Israel: Israeli budget includes controversial VAT plans
01 October 2014
Posted by: Author: Lorys Charalambous
Author: Lorys Charalambous (Tax-News.com)
Minister Benjamin Netanyahu and Finance Minister Yair Lapid both refused to
budge an inch in finalizing the 2015 budget on September 28, after weeks of
In the portion of
the budget Netanyahu sought to secure, the deal that has emerged includes
ILS7-8bn (USD1.9-2.17bn) in spending on defense this year, and a further ILS6bn
next year. Meanwhile, Lapid secured a commitment that taxes will not rise and
was allowed to proceed with his plans to apply a zero rate of value-added tax on
the first purchase of housing by certain categories of taxpayers, despite
warnings from the Central Bank against the policy.
As a result of the
Budget, hailed by Lapid as one of "hope and promise," the deficit
will drift from this year to about 3.4 percent of gross domestic product (GDP).
The value-added tax
proposal will involve the offering of a zero rate on property sales to
first-time buyers up to a value of ILS1.6m (USD460,000), instead of the current
18 percent rate on sales.
The concession is
to be offered to couples with at least one child, or persons over the age of
35, for whom the property is their first purchase. However, other conditions
attached to the tax relief have drawn criticism. Tax relief will be open only
to persons who have served in the army or who have completed National Service.
The proposal was
earlier approved by Israel's Parliament, the Knesset, with 31 lawmakers in
favor and 18 against. However, ahead of the Knesset vote, Knesset legal adviser
Eyal Yinon warned that the discriminatory treatment of certain categories of
taxpayers would, if challenged, be found to be illegal.
Governor of the Bank of Israel, Karnit Flug, warned that the measure would be
damaging and stoke rising house prices rather than make housing more
affordable. She pointed out that the problem is a lack of supply, which will be
exacerbated by the temporary rise in demand generated by the measure.
This article first appeared on tax-news.com.