"I am glad to inform you about NIS 800 million being returned to the people in tax cuts," Minister of Finance Moshe Kahlon said today. He added, "No such measure has been taken since the 1990s. We have surplus revenue resulting from very good activity in the economy, and this money is being returned to the public."
Kahlon said that a proposal to eliminate the customs duties exemption for Internet purchases had been rejected, although he said that this exemption was harmful to small and medium-sized businesses.
The cuts in customs duties and purchase tax are effective only for 2018, after which the Minister of Finance will decide whether to extend them, subject to the level of tax revenues and success in reducing the cost of living.
Kahlon convened a press conference in his office today attended by Deputy Minister of Finance Yitzhak Cohen, Ministry of Finance director general Shai Babad, Israel Tax Authority head Moshe Asher, Ministry of Finance Budget Department head Shaul Meridor, and Ministry of Finance chief economist Yoel Naveh.
Kahlon began his press conference by saying, "I saw that the media was concerned about whether the prime minister had been informed. The prime minister has been informed, and we are acting in line with the government's policy of lowering prices, reducing customs duties, cutting taxes - that is what we are doing. There is no deviation here; it is a direct continuation of a clear policy. There is fiscal responsibility; there is no breach of the budget framework and no recklessness. There is complete responsibility for the budget framework. We are also looking at the coming generations with respect to both debt and economic growth. It's not a matter of rejuvenation today and death tomorrow. The economy is strong, but we are preparing it for less favorable times."
Kahlon added that the plan had been coordinated with Israel Chambers of Commerce president Uriel Lynn, who is calling for the elimination of the customs duties exemption for online purchases of products up to $75. Kahlon said that he had refused Lynn's request, but admitted, "On the other hand, there are 500,000 small businesses that are being harmed by it, because someone who buys online does not pay customs duties, while a small retailer does pay. There were two alternatives. One was to cancel the $75 exemption, which we did not want to do, because it helps young couples, consumers, and households. In order to avoid harming small and medium-sized businesses, we decided to also cut their customs duties to zero."
Kahlon also said that the plan was designed to benefit the middle class, which "over the past 20 years has suffered under an economic burden and more and more government spending cuts, taxes, and customs duties. We are changing the trend in our country, while maintaining both the budget framework and fiscal responsibility on both the deficit and spending."
Kahlon listed all the tax and customs duties cuts he had made in the past two and a half years, and took pride in having raised civilian spending by unprecedented numbers for health, the National List of Reimbursed Drugs, education and welfare, soldiers on compulsory service and reserve duty, the buyer fixed price plan, increasing salaries for the police, and increasing allowances for the disabled and income supplements for senior citizens, which will be completed soon. He summed up by saying, "In order to make changes, you have to take courageous measure - otherwise, the situation is perpetuated."
The cut in purchase tax and customs duties is over NIS 800 million, including NIS 365.5 million on electrical goods and lighting, NIS 400 million on textile products, NIS 36.2 million on toys, and video and table games, and NIS 11 million on personal care products.
The products for which customs duties will be reduced from 12% to zero are heaters, refrigerators, food processors, fruit and vegetable juicers, lights and light fittings. 15% purchase tax will be eliminated on projectors, LCD and display screens, smart cards, convertors, amplifiers, video machines, and microphones.
NIS 400 million revenue will be given up from customs duties on clothing and textile products - customs duties will be cut from 6% to zero on all types of imported clothing. NIS 63 million revenue will be lost from the elimination of 12% customs duties on toys, games of various types, and sports equipment. NIS 11 million revenue will be lost from the elimination of customs duties on personal care products, including makeup, sunscreen products, wet wipes, deodorant, and soap.
Professor Asher Blass, formerly chief economist and head of capital markets at the Bank of Israel, responded to Kahlon's measures by saying, "Kahlon intends to cut customs duties where this will not harm local production. Well, that's a mistaken approach, because tariff barriers that protect inefficient local industry do more economic damage than tariff barriers that do not protect any local production, since leaving them in place is harmful to the correct allocation of sources in the economy. In general, the impression is that every few weeks we get a new plan, instead of there being long-term planning to create an efficient tax system that encourages investment and production in the economy."
Published by Globes [online], Israel Business News - www.globes-online.com - on December 11, 2017
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