Israel's Value Added Tax Law
1992/7 International Vat Monitor 2
13 Pages Posted: 22 Apr 2012
Date Written: July 1992
VAT has played a vital role in Israel’s tax system, especially when indirect taxation has become one the major source of state revenue (45%), as compared with direct taxes. In the light of the great success of the VAT regime in Israel in terms of enforcement, compliance and collection, public discourse in recent years has focused on the issue whether to replace, completely or partially, the income tax with VAT, and thereby increase the efficiency of the entire taxation system. This discussion turns on two major issues: Is there a ceiling to the VAT rate above which it will become neither just nor efficient? And secondly, under the classical and political perspectives VAT is considered regressive, and therefore, it would be necessary to deepen the progressiveness of the income tax or to use direct expenses in order to preserve the current distribution of income in the Israeli society or to set up a multi-rate consumption tax based on distributional effects. The article is analyzing the various aspects of the Israeli VAT regime, including the VAT regime on financial institutions.
Keywords: Tax, Value Added Tax, Israel
Suggested Citation: Suggested Citation