Tax Authority set to crack down on the Kabbalah business

Government seeks to collect from providers of blessings, sellers of ‘holy objects,’ and assorted religion-based professionals

Rabbi Yoshiyahu Yosef Pinto (R) seen in the Tel Aviv District Court,  May 3, 2015. (photo credit: Flash90)
Rabbi Yoshiyahu Yosef Pinto (R) seen in the Tel Aviv District Court, May 3, 2015. (photo credit: Flash90)

The Tax Authority on Thursday set out plans to tax Kabbalist rabbi blessing-givers, as well as other providers of religious services, such as cantors, mohalim (practitioners of ritual circumcision), “distributors or sellers of charms, holy water, or other holy objects,” and non-state-employed providers of kashruth supervision services.

Over the years, the Authority has sporadically investigated rabbis who provide “blessing services,” in some cases prosecuting them for tax fraud or hiding their income. In his annual report last year, State Comptroller Yosef Shapira railed at the “Kabbalists who are earning hundreds of millions of shekels a year, if not more, and who do not report the money they received as ‘donations’ or ‘tips’ as income.”

Included in Shapira’s report besides Kabbalists were heads of yeshivas, local rabbis not affiliated with the Chief Rabbinate (most of them from the ultra-Orthodox community), and the heads of private “Badatz” restaurant and food company supervision services, which claim to adhere to higher standards of kashrut than the rabbinate’s supervisors. All of these businesses, Shapira said, were cash cows, and the state was losing out on substantial tax income.

In many of the cases that the Tax Authority has prosecuted, the report said, lawyers for the defense have argued that the money received was not a fee but a gift, which should not be taxable. Some cases have gone on for years as the state and defendants tried to iron out a deal whereby the state would receive some of what it claims as its share of the loot.

According to the statement issued Thursday by the Tax Authority, among the criteria to be examined when determining a service provider’s tax bill will be whether the service is given as a one-off favor or as part of a permanent “business.” Do the service providers serve a large clientele – or seek one by advertising on posters, newspapers, and radio stations? Have the providers been active for a length of time, like a year or more? And, how much do they make from their business?

Also appearing on the list is one criterion that could directly impact the reputation of blessing givers: Do the service providers “have specific talents or skills that they are using in the provision of their service? Are they earning their income from the exercise of those skills? What is the effectiveness of their activity based on the skills or the spiritual invocations attributed to them?”

The answers to these questions, the Tax Authority said, “will determine the commercial nature of these service providers’ activities and whether the income should be seen as attributed to a business or career.”

In 2012, the Israeli edition of Forbes magazine published a first-of-its-kind ranking of Israel’s 13 richest rabbis (there has not been a follow-up since). In the number one spot was Rabbi Pinchas Abuhatzeira from Beersheba, a blue-collar southern desert city, whose wealth was estimated at $335 million. Rabbi Yaakov Israel Ifargan, right, known as the “X-Ray rabbi,” placed sixth, with an estimated net worth of $23 million. Also among the top earners was Rabbi Yoshiyahu Yosef Pinto, who was recently sentenced to a year in prison for his part in a bribery scandal involving a senior police officer who led the national anti-corruption unit – although his taxes were not an issue in the case.

The Tax Authority stressed in its document that it had nothing against blessing-givers or kashrut supervisors; the only thing it was interested in was business activity. It also was planning to distinguish between tax-free donations and “work,” with one indicator being the quid pro quo of an exchange.

“The time factor between when money is handed over and when a service is performed will be taken into consideration when determining the nature of monetary activity,” the document said.

“In addition, a distinction will be made between a payment for a specific service, and a donation that is given to an institution or an individual as a gift to thank them for assistance.” Realizing that distinguishing between a “donation,” “gift,” and “payment” might be sticky, the Tax Authority said it would have to consider such matters on an individual basis.

In any event, the Tax Authority said, it expects all those involved in the religion business to play by the rules.

“Providers of religious services will be required to follow all the rules involved in monetary transactions,” the document said, “such as the issuance of receipts, providing the Tax Authority with reports of activities, and presenting information when require on the sources of income, bank account deposits, and other assets, both in Israel and abroad.”

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