Every Consumer Purchase From Abroad May Be Taxed by Israel

Early planning on Israel’s new budget has included discussions on ending a tax break that’s cut the high cost of living but could drain much-needed cash from state coffers as the deficit balloons.

All online personal purchases from abroad would be subject to a levy if the proposal goes ahead, according to people familiar with the matter. Israeli consumers can currently make individual purchases of up to $75 of goods from abroad free of tax, already a much lower threshold than in countries such as the U.S.

Removing the exemption would raise a few hundred million shekels to fill the country’s budget deficit, according to one of the people, who asked for anonymity because the talks aren’t public. A spokeswoman for the Finance Ministry said the issue isn’t on the agenda at the moment.

Shares in Israeli retailers Fox Wizel Ltd., Adika Style Ltd. and Golf & Co Group all surged after the news. Adika was up more than 12% in trading at 3:05 p.m. in Tel Aviv.

Every Consumer Purchase From Abroad May Be Taxed by Israel

The discussion reflects the difficulties new Finance Minister Israel Katz will face in balancing his pledge to lower the cost of living with the need to cover a growing fiscal deficit.

Ending the tax break on the import of personal goods into Israel would benefit local retailers after crippling disruptions from the coronavirus pandemic. But it could also reshape Israel’s $3.7 billion e-commerce market by making purchases from international firms like Amazon.com Inc. and Alibaba Group Holding Ltd. less attractive.

Societe Generale SA has called cross-border sales “the driving force in online shopping” among Israelis, estimating that they made up more than half of total e-commerce revenue, with local products deemed inferior and more expensive.

Although the Finance Ministry was reportedly planning last year to move ahead with canceling the exemption, it wasn’t clear if the issue would remain on the agenda for Katz, who’s promised to increase competition and cut regulation.

‘Dramatic Decisions’

“We are talking about dramatic decisions that haven’t been seen before on the issue of the high cost of living and international imports,” Katz said in a local interview this week.

After more than a year of political paralysis, Israel swore in an emergency government last month to tackle the Covid-19 pandemic. One of the new cabinet’s first tasks is to pass the country’s overdue budget, with Israel on track to run the widest deficit in years as a result of a fiscal stimulus package of nearly 100 billion shekels ($29.1 billion).

Officials have also looked into pressing ahead with an initial public offering of government-owned Israel Aerospace Industries Ltd., one of the country’s biggest defense companies, in order to raise around $1 billion.

Much remains undecided about the budget outlook, including whether the fiscal plan will cover just this year or 2021 as well.

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