By Dror Halavy
YERUSHALAYIM – With predictions of lower growth already beginning to become reality, Prime Minister Binyamin Netanyahu and Finance Minister Moshe Kachlon agreed to reduce corporate taxes for Israeli firms by 2 percent. The new tax on corporate profits will be 23 percent – the lowest in Israeli history.
The tax will fall in 2017 and again in 2018, reaching the new low by that year. According to the Finance Ministry, that will result in a net loss of NIS 1.6 billion in tax income, but the Ministry expects to make that up in volume, with the increased economic activity expected to result from the tax cut.
The agreement was needed, Netanyahu and Kachlon believe, despite recent good news on the Israeli economy. The Central Bureau of Statistics this week announced an upward revision in economic growth for the first quarter, its second revision since making the original growth announcement. The economy grew in the first quarter by 1.7 percent, the CBS said. Originally, that figure had been set at 0.8 percent, and was later revised upwards to 1.3 percent.
With that, exports continued to show a worrying fall, down 13 percent in June compared to a month earlier, the numbers showed. The increased economic activity in the first quarter was due to increased domestic consumption and public expenditure outlays. The two are concerned that the production side of the economy is slipping, and do not want the economy to rely on expanding consumer activity to fund growth.
A report in Calcalist said that the government was also considering lowering the tax on intellectual property production in Israel. Currently, companies that develop IP in Israel but conduct business abroad are subject to taxes on their profits of between 9 percent and 16 percent, while the government seeks to lower that to 6 percent. The objective is to draw more foreign firms to open up research and development labs and offices in Israel.