Tax Authority to Yeshivas: No draft dodgers — or you will lose the tax benefit for donors

The Tax Authority is setting new requirements for yeshivas and religious institutions that wish to continue holding approval under Section 46 of the Income Tax Ordinance, which allows donors to receive a tax credit for their donations. In a letter sent to the institutions last week, they are required to declare that they do not have students who have been called up for security service and have not regulated their status with the military authorities as required by law.

According to the letter, the institutions will also be required to transfer to the Tax Authority an Excel file with a full list of their students for the relevant school year, including names and ID numbers, and to commit not to accept students with this status for studies in the future. The Tax Authority explains the move by stating that "as a rule, the continued provision of benefits that are given in direct or indirect connection to evasion of the draft obligation should not be allowed." It was further written that "it is not possible to indirectly finance, including through a tax credit for donations (credit under Section 46), the activities of religious institutions where students study who have not regulated their status with the military authorities."

As part of the requirement, a member of the institution's board of directors who is also an authorized signatory will be required to sign a declaration stating that "there are no students among its pupils who have been called to serve in security service according to the Security Service Law and have not regulated their status with the military authorities as required by law, and that it will not accept such students for studies at the institution." The Tax Authority has determined that the institutions will be required to submit the declaration and the list of students by the 30th of Tishrei 5787, October 11, 2026. The letter clarified that an institution that does not submit the signed declaration and the list of students, and also does not submit a written argument in response to the requirement, may lose the approval under Section 46.

The move comes after a proceeding in the Supreme Court concluded last month regarding the provision of tax benefits to donors to yeshivas where students who are subject to the draft but have not regulated their status study. The petition was filed by the "Israel Hofshit" movement, which argued that the tax credit for donors is effectively indirect public funding of the institutions. The petition claimed that in just four yeshivas, the cost of the tax benefit to the state in 2023 was more than 24 million shekels.

During the hearing, the state largely adopted this position and announced that it would act to stop the provision or renewal of Section 46 approvals to the relevant institutions and even to revoke existing approvals. Following this, the judges determined that the petition had exhausted itself, without expressing an opinion on the details of the implementation mechanism. Even earlier, the Attorney General Gali Baharav-Miara determined that the state cannot continue to "indirectly finance" religious institutions where students who are subject to the draft but have not regulated their status study, through the tax credit given to donors.

The loss of approval may have a significant economic impact for the yeshivas and religious institutions. Section 46 is a central tool in fundraising for non-profits and public institutions, as it grants donors a tax credit on part of the donation amount. Cancellation of the approval does not prevent the institution from receiving donations, but makes them less attractive for donors eligible for the tax benefit. For an individual donor, the credit under Section 46 is generally 35% of the donation amount, subject to the conditions and ceilings set by law.

The Tax Authority's move effectively links the compliance of the institution's students with the obligation to regulate their status with the IDF to the possibility of the institution indirectly benefiting from a tax benefit that the state grants to its donors. The issue has already led to a political confrontation in the Knesset. Last month, MK Moshe Gafni threatened not to allow the approval of hundreds of additional non-profits under Section 46, in protest against the removal of yeshivas where draft-eligible students study from the lists. Following the dispute, a vote in the Finance Committee on tax approvals for non-profits was even postponed.