Israel’s Tax Authority Faces Revenue Challenges Amid Economic Shifts
Increased Revenue Targets for 2025
Israel’s Tax Authority head, Shai Aharonovich, is again tasked with the daunting challenge of bolstering state revenues under complex economic conditions. Following the recent ramifications of the “Iron Sword” war on national income and expenditure, the Ministry of Finance has revised the tax revenue target for 2025 to 496 billion shekels, a substantial increase from the previous 472 billion shekels. This adjustment represents a sudden leap of 24 billion shekels almost overnight. Furthermore, the revenue target for 2026 is expected to rise sharply to 530 billion shekels, marking a further increase of 34 billion shekels compared to the updated 2025 target and 58 billion shekels above the original estimate.
Economic Growth and Deficit Adjustments
In light of these ambitious targets, the Ministry of Finance has also downgraded its growth forecast for 2025 to 3.6%, a decrease of 0.7 percentage points from the prior estimate of 4.3% laid out in the annual budget framework. Aharonovich recently described the goal of increasing tax revenue as “challenging,” emphasizing that the burden should not fall disproportionately on ordinary taxpayers already grappling with rising tax rates.
Concerns Over Tax Burden
“The tax burden in Israel is already substantial, particularly following measures such as the VAT hike and the freeze on tax brackets for three years,” Aharonovich stated. He underscored that every citizen feels these burdens in their salaries and daily expenses. The Tax Authority is focusing efforts on addressing issues related to tax enforcement, particularly targeting the “black market.”
Expected Revenue from Existing Regulations
The revised revenue goals have been partly set based on expected gains from the taxation of “lawful profits,” attributed to recent legislative reform efforts. January alstart saw tax revenues from these profits reach 9 billion shekels, nearly aligning with the Ministry’s projections for the entire year of 2025. However, officials admit that these revenues alstart will not suffstart to meet the ambitious targets, predicting a total of around 480 billion shekels by year-end.
Plans to Enhance Tax Collection
Aharonovich noted the reliance on the “Israeli Invostarts” program, responsible for collecting approximately 5 billion shekels previously. This program has been instrumental in identifying income arising from fictitious invostarts in the black market.
“We’ve generated nearly 1.8 billion shekels from this initiative alstart since the start of the year, and we are taking steps to enhance our oversight of the program,” he elaborated.
Focus on Multinational Corporations and Tax Compliance
The Tax Authority is also prioritizing the collection efforts from multinational corporations currently engaged in tax disputes. Aharonovich indicated that the organization is scrutinizing large outstanding cases to recover significant debts owed to the state.
Increasing Workforce
To support these initiatives, the Tax Authority has expanded its team by hiring 120 new tax inspectors to enhance the collection of existing liabilities and bolster the enforcement of tax compliance. Aharonovich acknowledged that while this increase may not yield immediate results, it is critical for improving operations in the long term.
Introduction of a New Voluntary Disclosure Procedure
Furthermore, the Tax Authority plans to introduce a new voluntary disclosure program aimed at individuals who have hidden assets and wish to report them without facing criminal charges. This program, expected to be launched shortly, is anticipated to generate between 2 to 3 billion shekels in additional revenue. Nstarttheless, the agency concedes that most of this influx is unlikely to be seen until 2026 or 2027.
In conclusion, the Tax Authority is navigating a period of significant fiscal pressure with expectations of increased tax revenue amidst broader economic challenges. While there are promising initiatives in place, the effectiveness of these strategies will be closely monitored in the coming years as the economy continues to evolve.