State Comptroller slams tax breaks

"The companies exploiting the tax breaks are varied and have different considerations when choosing a location for their plants, and the tax consideration is important, but not exclusive. The Ministry of Finance's inability to determine if reducing or abolishing the tax breaks will increase tax revenues does not mean that it is possible and necessary to grant unlimited tax breaks without adequate oversight on their use," states State Comptroller Joseph Shapira in the 2013 State Comptroller's Report today.

Shapira adds that the government "should systematically assess the cost of the tax breaks track and examine its contribution toward achieving the objectives of the law, compared with the cost of its implementation and its effectiveness compared with alternatives. The granting of unlimited tax breaks without a cost or effectiveness review and without examining alternatives is uneconomic conduct that harms the public interest."

The State Comptroller report confirms the findings by "Globes" in its campaign to reduce the huge tax breaks granted to Israel's largest companies. The report states, as "Globes" revealed, that some of the objectives of the Law for the Encouragement of Capital Investment are not being achieved, and most of the tax breaks go to corporations that pay a very low, and sometimes zero, companies tax rate, such as Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). In addition, there is no certainty about the tax breaks' added value in developing industry.

Shapira says that despite the clear findings about the law's growing cost to the economy, even as the law's effectiveness and achieving its objectives are in doubt, the ministries responsible for the law "placed no measurable targets to ensure that the law's objectives were met." The ministries are the Ministry of Finance, which was headed by Prime Minister Benjamin Netanyahu in 1997-98 and in 2003-05, when the Law for the Encouragement of Capital Investment was amended; and the Ministry of Industry, Trade and Labor (now the Ministry of the Economy).

Shapira states, "The ministries did not decide which entities were responsible for monitoring the tax breaks data, did not define criteria for systematic and proper review of the data, and did not create an effective oversight mechanism to regularly examine the granting of the tax breaks and the aid in their allocation to companies would achieve the objectives set out in the law."

The Prime Minister's Office declined to comment.

Published by Globes [online], Israel business news - www.globes-online.com - on October 15, 2013