Tax benefits in danger: Tax Authority in a dramatic move that will bring billions to the state
Shay Aharonovich warns that the compensation fund is about to run out, and revealed that the Tax Authority is examining a series of dramatic moves, including imposing property tax, taxing advanced study funds (karanot hishtalmut), and a mandatory reporting requirement on rent that alone would bring in about 1.5 billion shekels a year.
Dun & Bradstreet held the annual Duns 100 forum for senior tax industry executives, featuring Shay Aharonovich, Director of the Tax Authority. Participants discussed the pressing issues on the professional agenda, including challenges facing the tax system, the need to increase state revenues amid the war, and the potential impact of tax reforms on economic growth.
Shay Aharonovich addressed preparations for the 2027 budget, which must account for a significant increase in security expenses: "I was surprised by the opposition to the VAT reform. I believe this reform is a win-win. The idea is simple: shift VAT collection to a cash basis. If you receive the money, you transfer the VAT; if you don't, you don't. This is meant to protect small businesses and the self-employed, who are often forced to transfer VAT before receiving payment. Through the computerized measures we are introducing, we will also save a great deal of bureaucracy."
Aharonovich warned that the compensation fund is depleting: "Since the war began, we have spent about 20 billion shekels from the fund. Only a few billion remain, and it will likely be necessary to draw funds from the state budget next year."
Regarding legislative measures, Aharonovich emphasized the need for steps that do not harm growth: "Raising corporate tax or VAT is not the right move now. However, we should examine the return of property tax on land, a mileage tax for vehicles, and a review of existing exemptions. For instance, we could examine the taxation of returns from advanced study funds (karanot hishtalmut) after they are released. A mandatory reporting requirement for rent could bring in about 1.5 billion shekels annually. The tax exemption on residential apartments, which costs the state about 4 billion shekels a year, should also be examined."
He also addressed the high-tech sector: "There is no war with the high-tech world. The Tax Authority embraces high-tech, as nearly a third of direct tax collection comes from this sector. We are currently facing a crisis regarding companies registering abroad, and we have set a goal for 2027 to bring company registration back to Israel."
Shila Zabro Weiss, Senior Director of DUNS100, added: "The main challenge for tax policy will be balancing the state's need for revenue with the obligation to maintain economic growth. We are seeing a conceptual shift in how the Tax Authority operates, moving toward real-time collection and expanded enforcement. Artificial intelligence is expected to significantly transform the tax world in the coming years."
