The Knesset Finance Committee approved the government's multi-
year proposals for tax reform for their second and third
Knesset readings. The vote was 12:4: Likud, Shinui, the
religious, chareidi, and right-wing parties voted in favor;
Labor and Yahad voted against.
The bill will gradually cut the marginal tax rate, including
the health tax and National Insurance Institute levy, to 44
percent. It will also cut VAT by 0.5 percent, cut the company
tax from 34 percent to 25 percent, and grant a one-year
exemption on the purchase tax on homes that cost up to NIS
550,000 ($120,000).
During the final committee discussion on foreign trusts and
aggressive tax planning, at the Finance Committee's demand,
the Ministry of Finance promised to submit for approval
within three months the regulations it proposes for levying
taxes on creators and beneficiaries of trusts only if they
are Israeli citizens.
The Ministry of Finance also agreed to define aggressive tax
planning, which would be banned under the new law, in
Ministry of Finance regulations that must be approved by the
Finance Committee. The ministry agreed to a demand to lower
the automatic fine to be levied on tax plans deemed
aggressive, as set by the courts, from 50 percent to 35
percent of the unpaid tax.
The following amendments were approved by the Finance
Committee:
* The land betterment tax (mas shevach — a
capital
gains tax paid on apartments) will be cut from 25 percent to
20 percent beginning in 2008, instead of 2010.
* Graduates of universities will receive a half credit point
on income taxes for three years after receiving a BA and to
two years after an MA. Finance Committee chairman MK Rabbi
Yaakov Litzman (United Torah Judaism) broadened the tax break
to include all teachers, without explicitly stating that it
applies only to university degrees, thereby extending it to
graduates of yeshivas, if the courts do not intervene.
* The tax exemption on profits from savings for pensioners
will be raised to NIS 7,800 for individuals per year and NIS
11,700 for couples.
* The vesting period for employee options deposited with a
trustee so the options-holders will be eligible for a tax
break will be cut from 30 months to 24, including for those
exercising options given before 2006.
