The Ministerial Committee for Legislation is expected to discuss a bill Sunday that would immediately cut the country’s value-added tax from 18% to 17%, despite strong opposition from the Finance Ministry and Tax Authority.
The proposal, introduced by United Torah Judaism Chairman Yitzhak Goldknopf, is being advanced as Israel prepares for elections and is expected to be brought to the Knesset before voters go to the polls.
VAT cut bill advances as Israel heads toward election
(Photo: Dana Kopel)
The Tax Authority estimates the move would cost the state more than 8.5 billion shekels, or about $2.8 billion, in annual revenue. Finance Ministry officials warned that if the bill is approved, the government would have to find an alternative source of funding or cut public services.
“This is a populist election-eve proposal with no real economic justification,” a Finance Ministry official said Saturday. “Fighting the cost of living requires targeted measures, not opening a budget hole.”
Supporters of the bill, including welfare groups and business organizations, say reducing VAT would broadly lower prices and ease the burden on consumers. But past experience suggests VAT cuts are not always fully passed on to consumers, with some sellers absorbing the difference as a temporary profit boost.
Ahead of the debate, Shahar Turgeman, president of the Federation of Israeli Chambers of Commerce, sent an urgent letter to committee members urging them to support the bill. He said the tax cut was especially important for small and midsize businesses, which he described as the backbone of the economy.
Citing Central Bureau of Statistics data, Turgeman said such businesses account for about 90% of Israel’s commerce and services sector.
Israel raised VAT to 18% in January 2025 to help address the deficit caused by the war against Hamas.