Real estate tax collection soared 60% in 2015

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Real estate taxes accounted for 28% of Israel's total tax revenue in 2015, compared with just 5.4% in 2014.

2015 is a year that Minister of Finance Moshe Kahlon will want to forget. Completely confounding Kahlon's stated aim of cooling off the market, activity in the real estate sector reached the boiling point. A summary published today by the Bank of Israel as part of its 2015 annual report shows that proceeds from the sale of new apartments in Israel totaled NIS 64 billion in 2015, 60% more than in 2014.

This meteoric rise can be attributed mainly to a 56% increase in the number of deals and a 2% increase in the average deal price. A major part of the rise in the number of deals resulted from the low number of deals in 2014, when people were waiting for former Minister of Finance Yair Lapid's 0% VAT initiative, which did not pan out. Another factor was the wave of investors hurrying to buy housing in mid-2015 before the increase in purchase tax for housing took effect.

The report considers two main elements of taxation in the real estate sector. Proceeds from the first, direct real estate taxes (purchase and betterment tax), jumped 36% to NIS 10.6 billion in 2015. Proceeds from the second, VAT on purchases of new housing, rose 28% to NIS 7.6 billion. These two forms of real estate tax jointly accounted for 5.4% of total tax revenue in 2014; this proportion soared to 28% of total tax revenue in 2015.

The high volume of new housing sales over the past two years will also contribute to VAT revenue for the next two years, due to the scheduling of payments on these housing units. This income contribution is estimated at NIS 4 billion in 2016 and NIS 2 billion in 2017.

The Bank of Israel notes, "In addition to the estimate that appears in the Annual Report, the brisk housing market may help to boost state revenues in additional ways that the Bank cannot currently estimate directly." These include income tax on wages in the construction industry, corporate taxation on the profits of construction sector companies, VAT on inputs and construction services for new housing that is not up for sale, and tax revenue from sectors providing services or raw materials to the construction industry.

The report states, "Remittances of income tax on wages in this industry in 2015 are estimated at NIS 3 billion (about 0.25% of GDP) and account for nearly 6% of total collection of this tax (from employees and managers), as against 4% in the middle of the previous decade. Revenue from corporate tax on the profits of firms that operate in this industry -construction-industry product in 2015 was NIS 55 billion, which was 7.6% of total business-sector product, as against 6% in the middle of the previous decade. The increase in this proportion may imply an upturn, as well, in the share of the industry in collection of corporate tax on earnings. However, we do not have data with which to estimate these revenues. In addition, the boom in the housing market contributes to tax revenues from industries that provide services or raw materials to the construction industry, and also contributes to local municipalities’ revenues (that collect betterment levies)."

This gap was equivalent to NIS 6 billion in additional tax revenue in 2015. Tax receipts from these two tax items (VAT on new housing and direct real estate taxes) accounted for 6.7% of all tax revenue in 2015, compared with 4% in the middle of the preceding decade.

Published by Globes [online], Israel business news - www.globes-online.com - on March 22, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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