Israelis ordering from Amazon, Ali Express and thousands of other online shopping sites feel comfortable knowing that purchases under $75 are exempt from VAT and customs charges. But that exemption should be canceled, according to a report submitted to Economy Minister Orna Barbivay (Yesh Atid) this week.
The Economy Ministry’s Committee for Economic Promotion, which was formed in 2018 with the goal of recommending a program for the economic advancement of Israel’s trade and services industries, said the VAT exemption creates a competitive disadvantage for local retailers who are required to pay VAT from the first shekel.
The European Union made a similar decision last month when it canceled its exemption on imports valued at less than €22 from non-EU companies.
Canceling the exemption would be contingent on Israel developing a simple payment mechanism for consumers and suppliers to pay customs charges, the committee said in a report.
When Israel first began offering VAT exemptions on personal imports in the 1980s, no one imagined that online shopping would one day become so easy or popular. But more than 20% of purchases worldwide are now done online, and the pandemic has only accelerated that trend.
The exempted import value was increased from $50 to $75 in the aftermath of the social protests in 2011, and coordinating online purchases to keep under that amount has become a sort of national sport at the expense of local retailers who cannot compete on price.
Israel had previously planned to scrap the VAT exemption in 2019, but the collapse of the government staved off its implementation.
Last month, Finance Minister Avigdor Liberman (Yisrael Beytenu) floated the idea of canceling the $75 exemption as a potential measure to raise tax revenues. That discussion was ultimately shelved, although it may gain new life after the committee’s report.
The Manufacturers Association on Monday said it supported the committee’s proposal.
“This exemption severely hurts local businesses that do have to pay VAT, preventing them from competing fairly,” MAI president Ron Tomer said. “The abolition of the VAT exemption will strengthen businesses in Israel, create a better business environment and inject hundreds of millions of shekels into the state coffers.”
The report also recommended canceling the requirement that retailers put price labels on every item for easy price comparison and allowing them to publish prices digitally on store shelves only. While price stickers may make it easier for customers to compare prices, it imposes additional costs on the retailer and impedes technological progress, the report said.
The report was commissioned to help formulate an agenda for trade and services industries, which employ some 60% of the workforce and contribute 65% of GDP. These sectors are characterized by low labor productivity and excessive bureaucracy, and they require fundamental changes and reforms, the report said.
The Finance Ministry is advancing its own similar agenda for the 2021-2022 budget, with many overlapping conclusions. The government is working quickly to get the budget, which includes many measures for eliminating excess regulation and encouraging economic growth, approved by the November 4 deadline.