Finance Ministry Legal Advisor Pressured to Support VAT Plan

YERUSHALAYIM -

The legal advisor to Israel’s Ministry of Finance, Yoel Baris, withdrew his opposition to Finance Minister Yair Lapid’s plan for a discriminatory tax exemption on home purchases after direct pressure from Lapid to revise his opinion, senior officials have told Hamodia.

Initially, Baris argued that the clause excluding those who have not served in the military for exemption from the 18 percent VAT would not pass judicial scrutiny, and told Lapid so. However, the latter insisted, and Baris then wrote an opinion approving the bill.

In that opinion, Baris said that in view of the financial loss sustained by those serving three years in the IDF — as much as 200,000 shekels they might have earned in the marketplace — they are entitled to a benefit whereas others are not.

Eyebrows were raised among legal experts at the argument, which they considered to be too weak to stand if challenged in the courts.

In response to this report, a Finance Ministry spokesman said that “there is only one opinion, which has been submitted to the government’s legal counsel, and which has been publicized in the media.”

Responding to reports about tensions within his ministry over the VAT plan, Lapid said, “I have no interest in yes-men. I only want to work with intense people and the Ministry of Finance is full of such people,” Globes reported.

Meanwhile, the VAT exemption bill has already yielded results, though presumably not the kind that its author was looking for: the housing market has frozen.

The tax break, along with a “targeted pricing” scheme, promise to lower home prices by some 20 percent, once the measures go into effect. But that won’t happen until the Housing Cabinet’s approval, given this week, is translated into legislative form and passed by the Knesset, which months away.

In the meantime, building contractors report that prospective homebuyers are, not surprisingly, deciding to wait until the price reductions become reality.

Some are suggesting a solution whereby houses could be purchased now but with clauses in the contract providing for exemption for the VAT, in the event the law is passed, within 90 days, or cancellation of the purchase, without it being considered breach of contract.

Realtors are already offering such deals. For example, Israeli building firm Tzemach Hammerman is allowing purchasors to sign today on condition that the contract does not become operative until the VAT exemption goes into effect.

Time will tell — and in a short time — whether these schemes will unfreeze the market.