In a surprise move, the cabinet approved a demand by Negev and Galilee Affairs Minister Aryeh Deri to eliminate VAT sales tax charges from public transportation, and reduce the tax significantly on basic food products for lower-income Israelis. The government promised to implement the decision by the end of the calendar year.
Commenting on his victory, Deri said that he was “very happy that the decision was made. I made a promise and I kept it. This decision will provide assistance for low income Israelis, people who we are obligated to help.”
Shas, which has positioned itself as the “party of the poor,” campaigned on a platform calling for the cancellation of VAT, value added tax, on basic products. VAT, a sales tax that is attached to all transactions for products on the manufacturing, wholesale, and retail level, and on many services — the tax can be imposed on raw materials and a finished product separately — currently accounts for 17% of the price of retail goods and services, meaning that the removal of VAT charges would result in an instant discount of 17% on bus, vegetable, bread and dairy product prices, had Shas achieved that goal.
Reports last Thursday said that Deri had backed down on the demand that the changes be implemented in the 2016-17 budget, which the government must get approved by Wednesday, or face new elections. Before Thursday, it appeared that the government was indeed headed for a coalition crisis, as Deri cancelled an appearance before the Knesset Finance Committee to discuss his demands.
At a meeting Thursday morning, Deri said that he had “promised zero VAT on basic products and I intend to keep my word. Zero VAT will make life easier for hundreds of thousands of Israeli families. We insisted on this even before entering the government.” If his demands were not met, Deri said that he would instruct the eight Shas Knesset members to vote against or abstain from approving the 2016-17 state budget — votes that are critical to its passage.