Israel’s ‘cashless society’ won’t pay, say critics

A plan to limit the use of cash contains too many logistical and legal problems, economists and attorneys say

Harel Locker (Photo credit: Flash90)
Harel Locker (Photo credit: Flash90)

A special committee headed by Harel Locker, head of the Prime Minister’s Office, last week recommended the implementation of major restrictions on the use of cash.

Among the recommendations are banning all cash transactions over NIS 15,000 between individuals, and NIS 7,500 between businesses or an individual and a business, with the amount falling to NIS 5,000 after an initial period; limiting the amount of money that a check can be cashed for to NIS 7,500; and “strongly encouraging” Israelis to adopt the use of debit cards for all transactions.

Currently, there is no limit on how much individuals can exchange in business deals. For deals involving a business, the maximum cash transaction amount is NIS 20,000, a regulation issued in 2012. To get around the regulations, many people write multiple checks for bigger purchases, receiving a separate receipt for each payment. Under Locker’s recommendations, such behavior would be criminalized. Anyone caught trying to cheat the system would be subject to “heavy fines and penalties,” the committee said in its list of recommendations.

The government unanimously approved the recommendations, which the committee developed over the last six months. In a statement, the cabinet said that “the use of cash has been recognized in Israel and around the world as a significant factor in the development of the ‘black economy,’ in which citizens use cash to evade taxes.”

Although most people are honest, the statement said, the use of cash needs to be restricted because drug dealers, criminals, terrorists and other unsavory characters use cash to fund activities that are dangerous to all Israelis. “Our main goal is to maximize potential tax collection and expand the tax base, as well as conduct a war against economic crime and money laundering,” the cabinet said.

According to the committee, Israelis have more cash than ever, nearly NIS 50 billion, but tax collection has fallen significantly in recent years. Obviously, something is amiss, the committee said. “The economy has grown, as has the population, but the amount of business reported to tax authorities has fallen.” The logical conclusion is that more people are conducting transactions in cash, the committee said. A number of Knesset committees will now evaluate the Locker Commission report. MKs are expected to prepare legislation on the issue later this year.

Lest Israelis feel that the government is acting in too draconian a manner, the cabinet statement lists regulations in other places that are at least as restrictive. In the US, transactions of $10,000 or more are supposed to be reported to the Treasury Department. In the EU, cash transactions are currently restricted to 15,000 euros, but new regulations would cut that to 7,500 euros. In France, Italy, Spain, Belgium and others, individuals can be stopped on the street by special currency enforcement patrols who have the power to detain individuals or close down businesses for violating currency regulations.

Curbing the use of checks and cash for transactions leaves just electronic means of payments, though the government does not intend for Israelis to use credit cards to pay their bills. Instead, the committee said, “our intention is to explore and create incentives for the use of electronic debit cards which can be used to pay bills and make transactions, without having to pay commissions, like with credit cards. The substitute debit cards will be accessible to all Israelis via banks, as well as via the post office.” Steps are to be taken to ensure that even Israelis who have major credit problems, and could never qualify for a credit card, are able to acquire and use the cards.

There is no product on the market that meets the social, regulatory and security standards that need to be implemented, but Israeli high-tech was robust and creative enough to develop a proper system, the committee said.

Analysts said there were many questions that must be answered before the project progressed. Writing in business daily Calcalist, economists Tomer Varon and Omri Milman raised a number of issues, such as how banks would treat the use of the debit cards by account holders whose accounts had a negative balance; who would enforce the new laws, which may create a significant increase in workload for tax officials, considering that the Israel Tax Authority says that its workers are already behind on work; and how small businesses will be able to remain solvent, considering that the processing time for a debit card transaction could take as long as a week, while they will have to provide the customer with goods or services immediately.

In an interview, prominent Tel Aviv attorney Dr. Haim Stenger went further, stating that the new regulations would never hold up in court, because they contradict Basic Laws (the Israeli equivalent of constitutional principles). Stenger, who has appeared before the High Court numerous times, cited the Basic Law on Human Dignity and Liberty, which allows Israelis the right to “freely use their property,” a right that would be compromised if they were required to use a debit card for transactions, infringing their freedom to use cash.

The debit card system would prevent many poorer Israelis from making purchases for basic needs, because they would have to qualify for bank accounts and credit. This would harm their freedom to conduct transactions, as they would have no other way to make purchases.

“As long as there is no specific limitation in the law, there is nothing to prevent the public from using cash for transactions, no matter what the amount,” Stenger said. Treasury regulations issued in 2012 limiting transactions between businesses are not necessarily covered by the Basic Law, but transactions between individuals certainly would be, he said, adding that it is likely that any law passed by the Knesset on the matter would be struck down.

The government’s intent to cut down on tax evasion and “black money” is something all law-abiding Israelis agree with, said Stenger, but the way to implement it is not through a blanket ban of cash transactions. “Adding regulations and manpower targeting the habitual tax evaders will be much more effective than what is being proposed,” he said.

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