Government Compensation Plan Sparks Controversy Over Business Relief

In the coming days, the government is expected to pass legislation establishing a compensation framework for businesses affected by the indirect damages incurred during the “With Lion” war. However, industry stakeholders argue that the proposed plan falls short in addressing the actual losses faced by businesses.

Concerns Over Inadequate Compensation

Adi Azaria-Pasachov, CEO of Koret Israel Funds, emphasized severe disparities in the compensation model that negatively impact small and micro businesses, which are often the most vulnerable segments of the Israeli economy. “On the day the war started, I lost hundreds of thousands of shekels on refrigerators full of goods,” she said. Small businesses classified as losing between 80% to 100% of their income could expect a maximum compensation of less than 5% of the income lost-an outcome Azaria-Pasachov described as “mockery” to the struggling entrepreneurs barely surviving.

Proposed Compensation Framework

Last week, Finance Minister Bezalel Smotrich, in coordination with Finance Committee Chairman Moshe Gafni and other industry leaders, unveiled the compensation plan. It features a system of qualifying expenses similar to that used during the previous “Sword of Iron” conflict. Under the new framework, the Compensation Fund for Property Damage will provide compensation to businesses across the country with operational revenues ranging from 12,000 shekels to 400 million shekels, contingent on experiencing a revenue decline of more than 25% for monthly reports or 12.5% for bi-monthly reports in May or June 2025.

Small businesses generating between 12,000 and 300,000 shekels annually will qualify for a fixed continuity grant based on the level of damage incurred. In contrast, businesses with revenues between 300,000 and 400 million shekels will be eligible for a continuity grant composed of an expense reimbursement ranging from 7% to 22%, depending on the extent of loss, coupled with a reimbursement of 75% of payroll expenses related to the degree of impact.

Regulatory Challenges and Bureaucratic Barriers

Critics point to issues regarding the definition of “micro businesses,” which are classified under this plan as those with an annual revenue of 300,000 shekels or less. This classification could leave small enterprises, defined elsewhere as those with revenues between 1-2 million shekels, without any support. Azaria-Pasachov warned that this creates a distorted reality where the framework primarily benefits medium and large businesses, adequately supported by consultants and resources to navigate bureaucratic hurdles, while small businesses struggle without tailored assistance.

Furthermore, the Social Security Institute indicated that additional legislation may be required to enable actual disbursement of the proposed compensation. As such, many fear the relief offered might only exist on paper, with real financial help delayed for struggling businesses and workers.

Labor Impact and Eligibility Criteria

Shahar Turjeman, President of the Federation of Trade Chambers, expressed concerns that the current framework disproportionately harms workers in retail and servstarts. He highlighted that the eligibility criteria for transitioning to unpaid leave (referred to as “Chal’t”) seem deliberately restrictive, requiring employees to accrue 11 unpaid days within 12 days of combat. Most retail and servstart sector workers had only three working days amidst the conflict, making it virtually impossible to meet these thresholds.

Turjeman urged the government to consider revising the framework to lower the threshold for days absent to allow impacted workers to access their rightful benefits.

Alternative Insights on Economic Recovery

Legal experts, including Mira Bikel, head of the tax department at Shvalet Law Firm, echoed the sentiment that the compensation plan needs reevaluation, particularly in how it addresses the losses incurred by businesses. The framework aims primarily to reimburse fixed costs businesses continue to incur while operations are halted, but Bikel argued for an approach that would factor in lost future earnings as well.

Additionally, businesses facing substantial bureaucratic red tape when submitting claims may find themselves with little recourse, as prior experiences indicate that tax authorities are likely to discover and penalize any attempts to manipulate reported revenues.

In summary, as the government prepares to implement its compensation plan, the hesitation and frustration among business owners continue to underscore the urgent need for revisions, ensuring that support reaches the most vulnerable sectors effectively and timely