Israel Approves New Tax Changes

October 31, 2011 Taxation in Israel

Tax changes in IsraelTEL AVIV – The government of Israel is bowing to public pressure, and increasing tax rates on high earning individuals, while easing tax burdens for middle and low income earners.

On October 30th the Israeli cabinet approved several changes to the national tax system. The alterations are aimed at lowering the cost of living for middle and low income taxpayers, and supplementing any government revenue drops by raising tax rates applicable to high income individuals.

Under the proposed changes, individuals earning in excess of ILS 40 231 (approx USD 11 175) per month will see their income tax rate rise from 44 percent to 48 percent. Individuals with annual incomes exceeding ILS 1 million (approx USD 277 778) will also be levied with an additional 2 percent “high-earners tax”. The raised tax rates are expected to yield a cumulative ILS 2.1 billion (approx USD 5.8 million) in tax revenues per year.

The tax rate on capital gains and dividends will also rise from the current 20 percent to 25 percent. The rate will be increased to a further 30 percent for taxpayers who hold substantial stock holdings in any particular entity. The measure is expected to increase national tax collections by ILS 1.3 billion (approx 3.6 million).

The country’s corporate tax rate is also set to increase by 1 percent to a rate of 25 percent.

In order to decrease the cost of living and raise the spending power of low income individuals in Israel, the government plans to cut all excise taxes on gasoline. In addition, the government will remove all import duties on products for which there is no domestically produced alternative. Duties on all other imported goods will be gradually reduced, with the aim of removing most import duties by 2017.

Families with children under the age of 3 years will also see tax benefits, as the government will grant an ILS 418 (approx USD 116) per month tax credit to the father of the child. The concession is aimed at resolving recent public demands for improved funding of early childhood care across the country.
The changes still need to be approved by Knesset before they are enacted. If approved, the government plans to reevaluate the revised corporate and personal income tax rates by 2014.

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