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Israel Gets Creative With New Ways to Combat Tax Evasion

Aaron Huber
12 February, 2014

After decades of letting an entrenched grey market flourish and with few resources to pursue tax cheats, Israel is finally getting serious about the problem of tax evasion. The public first got wind of the new efforts on tax compliance when creative public service announcements were broadcast on TV and radio urging everyday citizens to report instances of suspected tax evasion to a special hotline.

Although Israel is located in the Middle East, it is also a Mediterranean country and attitudes towards taxes can be similar to those held in Spain and Greece. A recent survey conducted by the Dialog Polling Institute and The Marker, a leading business daily in Israel, reported that nearly 40% of 18-34 year olds preferred paying an electrical contractor in cash without a receipt in order to save the 17% VAT tax that is added to nearly all goods and services in the country. Another 36% of this age group did not agree that tax evasion constitutes stealing from government coffers.

So, why has the Israeli government chosen 2013 as the year to come down hard on tax cheats? A combination of overspending and under-collection of revenues in the past few years has led to a budget deficit of NIS 40 billion ($11.2 billion). This had ushered in austerity measures which include raising taxes on all sectors of society and the slashing of social benefits.

The top reasons that Israeli’s gave for tax evasion in the country were the “high tax burden”, and an “inequitable distribution of resources”. However, the first reason does not seem to bear out in statistics. According to the OECD, Israel has one of the lowest tax burdens when factored as a portion of labor costs. Additionally the current VAT of 17% is lower than the OECD average of 19%. As for the distribution of resources, there is a wide perception that the Jewish secular majority is subsidizing
the ultra-religious who have a low workforce participation rate.

Since the campaign started at the beginning of 2013 the Israel Tax Authority has reported receiving nearly 12,000 calls, however, it will be some time before the results are in regarding its effectiveness.

While raising public awareness about tax evasion is a laudable goal, real change will take decades as Israeli culture itself evolves. In Israel there is a huge stigma against being “the sucker” and children from a very young age are brought up with the fear of being taken advantage of. It is no surprise then that 8% of respondents to the above mentioned poll replied that fear of being “a sucker” was a reason for tax evasion. Therefore additional efforts at tax education which are incorporated into the high school
civics curriculum could yield better results over the long term.

About the Author

Aaron Huber

Aaron Huber is the founder of KYC Israel, a due diligence research firm that provides custom research solutions for clients needing information on Israeli businesses and individuals.
Web: www.israelbizreg.com


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