Finance Minister Yair Lapid is reportedly pushing a plan which would eliminate sales tax on the purchase of new apartments by young couples, effectively lowering the cost by 18 percent for those who qualify.
The plan would eliminate the 18% Value Added Tax for new apartments purchased by a couple who have not previously owned an apartment and have at least one child. One of the applicants must have completed either IDF or national service, and the couple must reside in Israel and agree not to sell the apartment within five years of purchase, Yedioth Ahronoth reported on Tuesday.
According to Finance Ministry sources cited in the report, the proposal, which aims to help alleviate the chronic shortage of affordable housing for young first-time buyers, came after extensive deliberations within the Housing and Finance ministries and was pushed through by Lapid despite opposition by senior ministry staff.
The proposal, one of many considered by the authorities to deal with the housing issue, is to be presented to the Ministerial Housing Committee for approval next week. If accepted, the change could cost the state as much as NIS 2 billion a year ($578 million) in lost tax revenue, and due to the bureaucratic procedures necessary to implement it, would not become active for at least six months.
Housing Minister Uri Ariel welcomed the move in a Thursday statement, and said implementing the full program will have a “real effect” on housing prices.
The proposal contains provisions to prevent contractors from simply raising prices to compensate for the difference, and to prevent changes in the general market as a result of the eliminated VAT, which is expected to affect a very small number of new housing units overall.
Contractors are to be protected from financial damage as a result of the ruling because the plan does not technically eliminate VAT — it instead sets it as 0% — so contractors building new apartments would still be able to offset their expenses for tax purposes, which would not be the same if there was no VAT altogether.
Israel has some of the highest real-estate prices in the world relative to average income, especially in high-demand areas such as Jerusalem or Tel Aviv, according to an IMF report from last month. The lack of affordable apartments for first-time buyers has long been considered an important domestic issue.