Excerpts from the
Annual State Revenue Report for 1998
| 1. |
According to the forecast for 1999, central-government tax revenues will be NIS 123.4 billion (in current ptices), 0.7 percent higer in real terms than in 1998. Several factors explain the unexpectedly low growth rate - even more sluggish than the predicted rate of economic growth in 1999:the forseen composition of the economic growth (low or negative growth rates in tax - intensive activities), the slower rate of inflation (which has reduced the effective personal income - tax rate), and the steep currency depreciation in late 1998 (which has depressed businesses' taxable income). |
| 2. |
The central - government tax burden - the share of total central - government tax revenue in Gross Domestic Product - decreased from 31.8 percent in 1997 to 31.2 percent in 1998 and is projected to decline to 30.8 percent of GDP in 1999. |
| 3. |
This decrease has occuped despite the absence of substantial changes in statutory tax rates. Legislative changes augmented collections by NIS 140 million in 1998 but reduced them by NIS 170 million in 1999. |
| 4. |
There will be NIS 18.1 billion in tax benefits in 1999, 14 percent of central - government tax revenues. The figure includes central - government tax benefits only; it does not include benefites in National Insurance contributions and municipal taxes. Every additional benefit and every expansion of an existing benefit shifts part of the tax burden to the rest of the population and makes the tax laws more complicated. |
| 1. |
The continued economic slowdown in 1998 was reflected in state tax revenues, which came to
NIS 116.2 billion, up 1.6 percent in real terms from 1997. Apart from the sluggish rate of GDP
growth this year (2 percent), the composition of the growth was skewed toward uses typified by
rather low tax intensivity. Thus, the vigorous increase in exports contributed to economic growth
this year but left no perceptible imprint on tax receipts. In contrast, imports of tax - intensive
goods such as motor vehicles and other durable decreased significantly in real terms. Additionaly,
the slower rate of inflation increased the real value of tax brackets and, therby, lowered the
effective rate of personal uncome tax. Additionally, sales of new dwellings (part of VAT base) declined.
The effect of legislative changes in the past year was negligible. |
| 2. |
Total taxes collected by the public ssector in addition to central government - i.e., including
the National Insurance Institute, municipal authorities, and other entities - came to
NIS 150 billion in 1998, 40.3 percent of GDP as against 40.7 percent in 1997. |
| 3. | The direct-tax burden was 20.7 percent of GDP; the indirect - tax burden declined by 0.3 percent to 19.6 percent of GDP. |
| 1. | In 1998, NIS 12.8 billion was collected on account of corporate income tax - a 3 percent decrease from 1997 after 20 percent increase in 1997 versus 1996 and a culmulative decrease of 14 percent in the two preceding years (all figures in real terms). Changes in collections income tax do not correlate strongly with changes in the pace economic activity for two reasons: the lag between an economic activity> and the playment of tax on it, and the taxation of capital gains, which are not included in GDP. |
| 2. | Processing of 1996 tax returns shows that the taxable income of corporations, as a class, increaced by 110 percent in real terms over six years. The number of corporations that filled income - tax returns doubled during those years and came to 71,000 in 1996. Some of the rapid increase in the number of corporations is traceable to decisions by the self - employed to incorporate themselves for tax reasons. |
| 3. |
Forty percent of corporations declared a profit of some kind in 1996. In the assessment process, another
2 - 4 percent of corporations that had no declared profits were found to have had profits. |
| 4. |
The average taxable income of profitable corporations was NIS 976,000 in 1996, 3 percent lower than in 1995
and 2 percent lower than in 1990 (both figures in real terms). |
| 5. |
Among corporations that filed returns, the uppermost decite garnered 93 percent of total profit and generated
the same proportion of tax receipts. The uppermost centile received 66 percent profit and paid that proportion
of the tax - a share that has been declining in recent year. |
| 1. |
According to the tax model of the Economic Research and State Revenue Administration, inequality in the distriburion
of personal income decreased in 1996 relative to 1995 - in both gross and net terms, among employees and the
self-employed, and between men and women. |
| 2. |
As of early 1999, the average personal direct-tax burden (income tax, National Insurance contribution, and health tax)
was 27.6 percent of taxable income. |
| 3. |
Some 43.3 percent of taxpayers did not reach the tax thresholr; 5.5 percent were in the highest tax bracket, and they
accounted for 50.9 percent of income tax collected (at standard rates). Thr average income of self - employed was
2.3 times than that of employees. |
| 1. |
Revenue from taxation of property in 1998 was NIS 3.2 billion - down 4.8 percent in real terms from receipts in 1997. |
| 2. |
The downturn in economic activity generally and in real-estate activity caused a steep decrease in collections of
the three property taxes - land-betterment tax (-3.5 percent), real-estate purchase tax (-7.1 percent), and property
tax (-4.1 percent). |
| 3. |
By decision of the Knesset, property tax will be abolished on January 1,2000, and replased with a 2.5 percent sales tax
applying to land and business structures. Building contractors only will pay a 0.8 percent sales tax on new dwellings;
this tax will deductible from their income tax. The maximum rate of real estate purchase tax will be raised from
4.5 percent to 5 percent for all types of property. Additionally, the lowest bracket of real-estate purchase tax
(0.5 percent) will be abolished for homebyers who already own at least one dwelling,so that the tax brackets applying
to these dwellings will be 3.5 percent and 5 percent. |
| 1. |
In 1998, receipts of Value Added Tax on account of private public consumption were NIS 33 billion (not including
NIS 5.2 billion in VAT receipts (excluding those originating in VAT on nonprofit organizations and financial
instructions) accounted for 29 percent of total state tax revenues and 9 percent of GDP. |
| 2. |
VAT receipts (excluding those originating in VAT on nonprofit organizations and financial instructions) accounted
for 29 percent of total state tax revenues and 9 percent of GDP. |
| 3. |
Purchase-tax revenues on account of domestic manufacture and imports (not including fuel excise and clearances to
Palestinian Authotiry) were NIS 9 billion 1n 1998, 2.3 percent lower in real terms than in 1997. This decrease
reflects the downturn in the growth rate of private comsumption and the decrease in motor-vehicle imports. |
| 4. |
The policy in regard to purshase tax is to simplify the tax system, make the collection process more efficient,
and create interchangeability between purchase tax and Value Added Tax. To meet these goals, purchase-tax rates
have been lowered, narrowed, and standartized. Budget difficulties are making it difficult to continue lowering
purchase-rates, except for several adjustments and modifications. |
| 1. |
Total collections on account of purchase taxes and customs on motor vehicles and automotove parts were
NIS 4.5 billion in 1998, 4 percent lower in real terms than in 1997. Revenues on account of vehicle purchase
taxes have been declining in real terms for several years. In 1998, apart from a 2.5 percent real decrease in
vehicle prices, the economic slowdown depressed purchases of new vehicles (private and commercial up to four
tonnes) by 6.6 percent. |
| 2. |
The steep currency depreciation that began in the summer of 1998 slowed the pace of turnover of cars to
consumers at the end of the year. The main effect of the price increases occasioned by the currency
depreciation became identifiable in early 1999, when orders of vehicles from abroad declined. |
| 3. |
Revenues from purchase tax and customs on automotive parts - imported and of domestic manufacture(including
tires, air conditioners, and air-conditioner perts) were NIS 312 million in 1998, down 10.5 percent in real terms.
The decrease was caused by a steep decline in imports of air conditioners for installation in new cars in Israel
("kits"), with an increase in imports of vehicles equipped with factory-installed air conditioners. |
| 4. |
In 1998, fees and imputation of fringe benefits on commercial vehicles were equalized with those applying to private cars, as part of a comprehensive process in which taxation of private cars is being harmonized with taxation of commercial vehicles. This process is meant to prevent, to extent possible, the extent possible, the resource-allocation distriction that may occur because of tax considerations. Changes were made in imputing the benefit for private cars and in the method of exempting safety-related accessories from taxation. |
| 5. |
State revenues from fuel excite were NIS 5.2 billion in 1998, similar to the 1997 level in real terms. NIS 400 million
in excise revenues was cleared to the Palestinian Authority; this sum is not included in state revenues on account of the fuel excise. |
| 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 predeterminal achelude. For most industries - such as structural iron and steel,
glass products, tires and refrigeratiors - the process was complited in 1996. For "sensitive" indystries such as
lumber and footwear, 1998 was the last year. For textiles, the process will end in 2000, thus completing the
program. By then, tariffs on imports from "third countries" will have settled at 12 percent on finished products
and 8 percent on raw materials. |
| 2. |
During the seven years of the program, the relative prices of all "exposed" products have decreased by 3 percent
on annual average. |
| 3. |
During this time, imports from the Common Market countries have increased by 209 percent and imports from third
countries have expabded by 253 percent (both figures in culminative terms). One reason for the difference in
growth rates is an ongoing and stedy uptrend in imports ftm third countries, prompted by the protacted
decline intariffs. |
| 1. |
Israeli's tax burden is about 40 percent of GDP, similar to the Western European average - in contrast to tax
burdens of more than 50 percent in Sweden and Danmark and approximately 30 percent un the Unated States and Japan. |
| 2. |
The direct-tax burden (including National Insurance contributions) is lower in Israel, at 21 percent of GDP, than
in most other Western countries. Israeli's direct-tax sysrem in notable for a narrow base-due to a profusion of
exemptions and a relatively high tax threshold-and for steep escalation of marginal tax rates, in which the
uppermost tax bracket begins at a relatively low income level. Israel also has a relatively low level of direct
taxation because its social insurance (National Insurance) contributions are lower than in other countries -
4.7 percent of GDP as against 19.3 percent in France and 17 percent in Germany. Only denmark has a lower share
of contributions than Israeli's, at 1.7 percent of GDP. It should be born in mind that since National Insurance
and income tax are largely interchangeable, the distinction between them is not very important. |
| 3. |
Israel's indirect-tax burden, in contrast, surpasses that in most industrialized countries. Israel has a high
rate of Value Added Tax by international standards and applies it to an extremely broad base. Additionally,
Israel's purshase taxes on consumer goods and and real estate are especially high telative to most other countries. |
