VAT, corporate tax to be cut in 2011

Sources inform "Globes" that Prime Minister Benjamin Netanyahu will continue to implement his planned tax reduction program without making any changes. According to the original plan, corporation tax is due to be reduced by 1% to 24% at the start of 2011, decreasing state revenues by NIS 650 million.

In addition, VAT will be reduced from 16% to 15.5%, returning to the rate that it was before the economic crisis. This will result in a loss of NIS 1.8 billion in state revenues.

The Ministry of Finance supports the continuation of this tax cut plan.

However, the Bank of Israel has concerns about Netanyahu's intentions. Bank of Israel Governor Prof. Stanley Fischer said last night, "The government has recently passed a new fiscal rule for determining the rate of growth of government expenditure accompanying the outline of the fall in the budget deficit in the ratio of the government debt to GDP. The government also announced its intentions to carry on reducing marginal tax in order to encourage growth. Assuming the economy can return to growth of 5% - a target that looks a bit ambitious at the moment - then the target of reducing the deficit and tax levels can be achieved. But growth will be slower, and the government must decide if it wants to cut the rate of growth of government expenditure, or give up on part of the tax reductions. It will be a difficult decision.

Published by Globes [online], Israel business news - www.globes-online.com - on May 3, 2010

VAT, corporate tax to be cut in 2011

The government's tax cut plan is going ahead despite Bank of Israel concerns.