Eilat mayor threatens to seal off city over VAT plan

The Eilat municipality announced Thursday that all entrances to the city would be closed on Wednesday next week, in protest of the Finance Ministry’s reported plan to introduce VAT (sales tax) to the Red Sea resort town as part of austerity measures.

Eilat is currently a duty-free zone. VAT in the rest of the country stands at 17 percent but the Finance Ministry is seeking to raise it to 18 percent, and to apply it to Eilat as well.

Mayor Meir Yitzhak Halevi said in a statement that canceling the VAT exemption would “devastate the city” and “reduce tourism by 20%.” The measure would mean Eilat hotels “couldn’t compete” with other Middle Eastern tourist destinations and would cause “grievous harm” to city residents.

Halevi said city officials were forming an emergency task force to deal with the situation and would launch a publicity campaign against the potential measure. Next week’s city council meeting, Halevi added, would be held at one of the closed city entrances.

Eilat is a popular tourist destination for Israelis and international visitors, where the lack of sales tax means lower prices for hotels, food and shopping, which in turn compensates for the cost of getting to the country’s southernmost point. Deputy Mayor Eli Lankri estimated the VAT exemption amounts to some NIS 400 million annually, Channel 10 reported Thursday.

Finance Minister Yair Lapid and Prime Minister Benjamin Netanyahu were holding a meeting on the budget issue early Thursday afternoon.

Lapid’s plan to deal with Israel’s NIS 39 billion budget deficit — which reportedly includes cuts to allowances for children and a tax increase for consumers and top earners, in addition to heavy cuts to the defense budget and other ministries — will likely face an uphill battle in the Knesset.