Knesset passes law extending tax benefits for West Bank settlements

The Knesset votes 32-23 overnight in favor of a law granting extended tax benefits to dozens of West Bank settlements, amid fierce criticism that the coalition is prioritizing the measure while delaying aid for northern communities devastated by more than two years of Hezbollah attacks.

Sponsored by Religious Zionism MK Zvi Sukkot and lobbied for by party leader Finance Minister Bezalel Smotrich, the law creates a new “eastern confrontation line area” designation, expanding tax benefits to roughly 59 settlements located east of the security barrier, including Kedumim, where Smotrich lives.

Opposition lawmakers have accused Smotrich, whose party draws much of its support from the settlement movement, of using the measure to funnel state resources to his political base ahead of elections.

According to the law’s explanatory notes, many West Bank settlements facing security threats are already included in the government’s national priority areas. However, unlike some communities along the Gaza and Lebanon borders, they are not eligible for tax breaks based on those security threats, which this law addresses.

To qualify, communities must be located more than two kilometers (1.2 miles) from the barrier and meet additional security and socioeconomic criteria, including a requirement that school transportation be conducted exclusively in bulletproof vehicles.

The law will take effect retroactively from January 2026 and remain in force through December 31, 2027. The Israel Tax Authority has estimated that the law will cost NIS 130 million ($35 million) annually.

The law was passed amid an ongoing dispute over long-delayed assistance for northern border communities who remain under daily bombardment. According to Hebrew media reports, a long-promised rehabilitation package for the north was delayed last week due to Smotrich’s insistence that the tax benefits measure for settlements be passed first.

Sukkot’s original proposal focused exclusively on West Bank settlements, while a later version was amended to include a handful of northern communities within two kilometers of the Lebanese border, prompting opposition lawmakers and local leaders to accuse the coalition of using the needs of northern residents to build support for a measure primarily benefiting settlements.

Smotrich vetoed extending the benefits to communities within nine kilometers (5.6 miles) of the border and the proposal was dropped after northern leaders insisted on including either all communities or none.