Ministers promise billions in tax cuts in coming weeks
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Ministers promise billions in tax cuts in coming weeks

Tax surplus, dropping rates overseas seen as causes for planned slashes to corporate and middle-class income taxes and VAT

Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon sit for a lunch break at Hummus Ben Sira in Central Jerusalem, February 8, 2017. (Noam Revkin Fenton/Flash90)
Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon sit for a lunch break at Hummus Ben Sira in Central Jerusalem, February 8, 2017. (Noam Revkin Fenton/Flash90)

Finance Minister Moshe Kahlon and Prime Minister Benjamin Netanyahu announced on Monday plans to lower taxes in the coming weeks amid expectations of economic growth in 2017.

A laconic statement released by the Prime Minister’s Office and the Finance Ministry did not specify any particular taxes or economic areas that might be targeted for the cuts. But a report in the Israeli business journal The Marker said the plans included a one-percentage-point drop in the value-added tax on consumer goods and services, a steeper-than-planned drop in the corporate income tax rate and cuts to personal income taxes at multiple income brackets.

The move comes “due to the economic achievements of the State of Israel in the past year” and Netanyahu and Kahlon’s “desire to continue to encourage economic [growth] that will benefit Israel’s citizens,” the official statement said.

The announcement came two days after Kahlon told Channel 2 that the state treasury is expected to register a roughly NIS 3 billion ($820 million) surplus in unexpected tax income for the first quarter of 2017, though the exact figure won’t be known until April.

“I’m in favor of lowering taxes. A person who works should pay as little in taxes as possible. This money won’t stay in the treasury; it will be returned to the public,” Kahlon said in the television interview.

The finance minister insisted the tax breaks will be targeted at the elderly and disabled.

But according to The Marker report, the cuts will be broader and deeper than the single-quarter surplus announced by Kahlon.

Income taxes will be cut mostly for the middle class, as the lowest earners already pay little to no tax, and in some cases receive tax refunds. The cuts will happen through adjustments to the income tax brackets.

The move, expected to take place in the coming weeks, comes only a few months after the last income tax cut, which went into effect on January 1.

The value-added tax on retail transactions for most goods and services is slated to drop by one-half to a full percentage point from the current 17%.

Corporate income tax is also slated to drop faster than already planned. Israel’s corporate tax rate was lowered from 25% to 24% on January 1, and is slated to drop again to 23% on January 1, 2018. The current plan, The Marker report said, is to double the size of the planned cut in January to two points, lowering the overall rate to 22%.

The corporate cut reflects, in part, growing competition for foreign firms as corporate income tax rates drop elsewhere in the world.

Lawmakers from the opposition Labor Party, currently in the throes of a leadership primary, castigated the planned cuts.

“Stop Netanyahu’s electioneering economy!” railed candidate MK Amir Peretz.

“The money should be returned to the public through better social services,” not through tax cuts, he said in a statement.

“Israel continues to be the ‘queen’ of social disparity, and the government of Israel continues its neglect and disregard,” he said. The extra funds “should go to needy elderly and to easing the pressure on hospitals.”

MK Itzik Shmuli, also of Labor, warned against using the windfall to lower the VAT by a “sliver of a percentage point,” and instead urged that the extra funds be used to bolster social services.

The tax cut announcement also came hours after it emerged that Intel would pay a massive $15.3 billion to purchase Jerusalem driver-assistance system maker Mobileye, bringing more than $1 billion (NIS 3.7 billion) in capital gains taxes into state coffers.

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