VAT Gap Frustrates Tax Reform

The average Israeli has not been receiving the full benefit intended by the recently lowered VAT tax, Globes said on Tuesday.

A senior Ministry of Finance source revealed that the decrease in VAT from 18 percent to 17 percent last October has only been partially passed on to the consumers.

“We cut VAT by one percent, but half of the businesses added it to their profits, rather than passing it on to the consumer. The retail chains also failed to give the consumers the full difference. That’s very serious.”

Prime Minister Binyamin Netanyahu and Minister of Finance Moshe Kahlon announced the cut, which took effect on October 1, 2015. The measure, made possible by surplus tax revenues, was aimed at encouraging private consumption.

It did indeed yield retail reductions on some large items. For example, the price of a car previously listed for NIS 100,000 fell by NIS 847, and the price of a refrigerator listed at NIS 8,500 fell by NIS 72.

However, in the case of food products, the much smaller price reductions—a fraction of a shekel per product—were not reflected in lower retail prices. Apparently, the retail chains were able to avoid passing on the savings, since on individual items the difference was small enough to go unnoticed by shoppers.

A Globes survey of food products such as rice at several large chains confirmed the Finance Ministry’s assertion.