| 1. |
According to the forecast for 1998, state tax revenues will be NIS114.8 billion (in
current prices), 1.6 percent higher than in 1997 in real terms. This increase will occur
if Gross Domestic Product expands by 1.5 percent as predicted, because of legislative
changes and despite a decrease in personal income tax prompted by a tax-bracket adjustment
exceeding the inflation rate. In terms of proportion of GDP, tax collections are expected
to remain at the 1997 level of 32.1 percent.
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| 2. |
Legislative changes will augment collections in 1998 by NIS250 million, after an
increase of 0.7 percent of GDP in 1997 relative to 1996. Legislative changes in 1993-1996,
in contrast, reduced tax receipts by a cumulative 2.1 percent of GDP.
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| 3. |
Tax benefits in 1988 will be NIS19.2 billion or 16 percent of state tax revenuesa
higher proportion than in 1997. Any additional tax benefit and any expansion of existing
benefits will have the effect of transferring this portion of the tax burden to the rest
of the population, not to mention further entangling the tax laws.
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| 1. |
After a cumulative decrease of 14 percent in collections of corporate income tax in
1995-1996, a real increase of 20 percent occurred in 1997, bringing total revenue on this
account to NIS12.5 billion. Changes in corporate income tax collections do not correspond
well to changes in the pace of economic activity because (1)much time passes between
taxable economic activity and the payment of taxes on it, and (2)corporations pay tax on
capital gains, which are not included in GDP.
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| 2. |
Processing of 1995 tax returns shows that the collective taxable income of the
corporate sector increased by 80 percent in real terms between 1990 and 1995. The number
of companies that filed income-tax returns nearly doubled during this time and came to
64,000 in 1995.
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| 3. |
The proportion of companies that declared a profit climbed from 38 percent in 1990 to
41 percent in 1995.
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| 4. |
Companies that showed a profit had an average taxable income of NIS860,000 in
1995five percent lower in real terms than in 1990.
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| 5. |
Among companies that filed returns, the uppermost decile accounted for 93 percent of
total profits and tax. The uppermost centile contributed 65 percent of profits and taxa
rate that has been declining in the past few years.
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| 1. |
In 1997, Value Added Tax receipts on account of private and public consumption were
NIS31 billion, 1.7 percent higher than the 1996 level in real terms. This modest rate of
increase corresponds to the pace of expansion of economic activity in 1997.
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| 2. |
Value Added Tax receipts (excluding VAT revenue from nonprofit organizations and
financial institutions) were 29 percent of total state tax revenues.
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| 3. |
Revenues from purchase tax on domestic manufacture and imports were NIS7.9 billion in
1997, down 5.5 percent in real terms from the 1996 level. This real decrease is traceable
to the aforementioned decline in domestic economic activity and a real decrease in imports
of goods.
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| 4. |
The policy with respect to purchase taxes aims to simplify the tax system, streamline
the collection process, and create a substitution effect between purchase taxes and Value
Added Tax. Consequently, purchase-tax rates on various inputs have been reduced, lowered,
and unified. Budget difficulties make it hard to continue reducing the purchase-tax rates,
although adjustments and changes have been occurring.
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| 1. |
Total collection of motor-vehicle taxes (excluding fuel excise) were NIS7.6 billion
in 1997, 8 percent lower than in 1996. The economic slowdown was evident in this respect,
as in receipts on account of most taxes. Additional factors have created a real downtrend
in revenues from motor-vehicle taxes in the past several yearschanges in exchange rates
and tax rates, and competition in the motor-vehicle industrydespite the increase in
motor-vehicle thefts.
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| 2. |
The decrease in motor-vehicle tax receipts in 1997 is traceable to a decline in
vehicle imports, a real decrease in the prices of vehicles (relative to the Consumer Price
Index), a downturn in world prices, and rising competition in the domestic motor-vehicle
industry.
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| 3. |
Revenues from purchase tax and customs on automotive spare parts were NIS260 million
in 1997, 10 percent lower in real terms than in 1996. The upturn in thefts of motor
vehicles, which after dismantling provide a cheap (and tax-free) alternative to illegal
parts, helps explain the decrease in receipts on this account. A decline in the prices of
legal parts also contributed to the decrease.
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| 4. |
Over the past few years, some tax regulations pertaining to recognition and
deductibility of businesses car expenses have been amended to correct distortions that had
caused businesses to prefer certain vehicles for tax reasons.
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| 5. |
Several changes with respect to automotive safety accessories were made in the past
year. A decision to introduce a uniform exemption for such accessories, obviating the need
to declare their price, was made. The purpose of this measure is to prevent artificial
inflation of accessory prices in order to benefit from the tax exemption.
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| 6. |
When engine displacement ceased to be an index for the valuation of motor vehicles,
it also stopped being a reasonable basis for taxation. The reform in license fees for
private and commercial vehicles created a new basis for tax computations by relying on the
prices of new vehicles.
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| 7. |
State revenues from fuel excise grew by 9 percent in real terms relative to 1996 and
came to NIS5 billion. The vigorous growth of receipts on this account is traceable to
higher consumer prices for gasoline; the quantity consumed was unchanged as a result of
the economic downturn.
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| 1. |
A program to remove nontariff barriers against imports from third countries (those
with which Israel does not have FTA agreements) was introduced in September 1991. The
nontariff barriers were replaced with tariffs that were reduced each year following a
predetermined schedule. For most industriessuch as structural iron and steel, glass
products, tires, and refrigeratorsthe process was completed in 1996. For sensitive
industries such as lumber and footwear, 1998 will be the last year. For textiles, the
process will end in 2000. By then, tariffs on imports from third countries will have
settled at 12 percent on finished products and 8 percent on raw materials.
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| 2. |
The beginning of the import liberalization marked its sixth anniversary in August
1997; The process of exposing most domestic industries to competing imports was completed
at the end of that month.
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| 3. |
During the six years of the program, the relative prices of all the exposed products
decreased by 4 percent on average. The proportion of imports from third countries was
higher in the last year of the process than in any year since the program began. Of
course, these two findings can be explained in many ways other than the liberalization
process itself.
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| 1. |
International comparisons in tax affairs are not simple because different countries
tax systems vary widely. Health taxes and compulsory contributions to pension funds are
only two examples of differences among countries that would significantly affect data on
the tax burden of each.
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| 2. |
As a percent of GDP, Israels tax burden is lower than the Western European average40
percent as against 50 percentand higher than the 38 percent average in the OECD countries.
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| 3. |
Israel has a lower direct-tax burden than other countries. Its direct-tax system is
noted for a very narrow basethe result of the many exemptions and a rather high
thresholdand marginal rates that climb steeply, the uppermost brackets applying to a
relatively low level of income.
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| 4. |
The indirect-tax burden, in contrast, is higher in Israel than in most industrialized
countries. Israels Value Added Tax rate is not low by international standards, but its
base is very broad. Additionally, especially high purchase taxes are applied to real
estate.
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