Tax Authority Wants Its Cut of Online Purchases

In the digital age, more Israelis are purchasing virtual goods – music files and e-books from sites like Amazon. Prices on those items, however, might be going up a bit – 17 percent, to be exact, as authorities seek to impose value-added sales tax (VAT) on virtual products purchased from abroad.

On Sunday, the Tax Authority distributed a notice to sites that are involved in selling or shipping virtual products locally or from abroad that they are required to charge customers sales tax. The rules do not apply to physical products ordered online, which are, as per Israel’s trade agreement commitments, tax-free for the first $75, with VAT applying only to products valued at between $75 and $500.

The notice was sent to a long list of e-tailers with whom Israelis do business on a regular basis. In order to save online retailers the hassle of filing tax documents, the Authority suggested that e-tailers charge their Israeli customers the 17 percent VAT charge, and then pay the tax once every three months in a lump sum.

Currently, the law is voluntary, but the Authority intends to make it permanent by getting the Knesset to legislate the payment requirement. If a law is passed, the Authority will be able to ban sites from doing business with Israelis, or sanction the Israeli credit card companies who are a part of the deal based on the use of credit cards. The Authority will also be able to track those credit card payments and place blocks on the bank accounts they are associated with until customers pay up.

In a statement, the Tax Authority said that it was following a recommendation of the OECD, which is encouraging member countries to charge tax on digital purchases.