Sales tax increase postponed until September

Finance Minister Yuval Steinitz announced on Tuesday that a 1 percent increase to the VAT sales and service tax would be delayed until September instead of starting Wednesday.

The hike from 16% to 17%, which is expected to increase state revenues by NIS 4.4 billion, is part of a fiscal package approved by the Cabinet on Monday.

But Tuesday, Steinitz met with MK Moshe Gafni (United Torah Judaism), the chairman of the Knesset Finance Committee, which must approve measures such as those voted on by the cabinet on Monday. Gafni was furious at how he was informed of the fiscal package and will convene his committee in order to discuss the package no earlier than Wednesday morning, Globes reported.

It was not clear how he was informed.

With Gafni refusing to allow the VAT hike to go into effect at the beginning of August, the Finance Ministry announced the delay in order to “allow businesses to prepare and update their accounting systems.”

“Despite the will of the Knesset, legally it is not possible to raise the VAT at this time, and the move will have to wait,” Gafni told Israel Radio on Tuesday morning.

Labor Party head Shelly Yachimovich, who opposed the tax increase on Monday saying it unfairly puts the burden on the shoulders of the poor, also blasted the announcement on Tuesday to postpone the VAT increase by one month. Yachimovich said that the decision is “further proof that the economic policies of Prime Minister [Benjamin] Netanyahu were established in a panic and are being implemented with negligence.” She further referred to the “confused behavior” of Steinitz and Netanyahu, warning that it will “create a serious lack of faith in Israel’s economic leadership.”

National Insurance Institute Director General Shlomo Mor-Yosef has also criticized the VAT increase. In an interview with Army Radio, Mor-Yosef said “the economic policies of Netanyahu and Steinitz will bring a significant hardship onto the lower classes” by forcing them to spend much more money every month.

VAT may be holding steady for now, but gas prices, which have decreased over the last three months, will climb sharply on Wednesday. As of August 1, gasoline will rise by NIS 0.43 to 7.70 for a liter of self-serve 95 octane gasoline.