In a dramatic press conference Monday, Finance Minister Moshe Kahlon announced a sweeping cancellation of all import duties on a wide variety of imported consumer products. Included in the list of products that will be allowed in tax free are: household electronics; refrigerators and washing machines; clothing and textiles; makeup; and many other consumer products. The program will eliminate some NIS 800 million in import duties.
“This reform is important for the pocketbooks of all Israelis,” Kahlon said at the press conference. “We will not cause damage to the economy by intervening, and we will not actively reduce prices. Retailers wanted us to limit online shopping and we refused, but on the other hand we saw that 500,000 Israeli businesses were suffering. We decided to even the playing field. The large majority of imported goods will be exempt from import duties, and there will be a significant slashing of prices for consumers.”
Imported products sold in Israel generally have three tax components – import duty, purchase tax, and Value Added (sales) Tax (VAT). Import duty ranges from 0 percent on products made in countries with which Israel has trade agreements, to as much as 50 percent on large appliances from other countries. Most products imported into Israel are manufactured in China, a country with which Israel does not have a free-trade agreement. For example, many toys, furniture items, shoes, and eyeglass frames and lenses imported from China carry a duty of 12 percent, while larger electronics can carry a duty of up to 30 percent. Kahlon’s plan cancels duties on nearly all consumer items across the board.
Kahlon also plans to cancel the purchase tax imposed on nearly all imported products. This tax ranges from 10 percent to over 100 percent of the value of a product. “Purchase tax was imposed originally to encourage Israelis to purchase locally produced goods, but most consumer goods are not produced here,” a Yisrael Hayom report quoted senior Finance Ministry officials as saying. “Thus there is no reason for the purchase tax today.” The report said that Kahlon has worked out arrangements with the heads of Israeli companies that do compete with imports, to provide them with assistance to compete fairly with imports.
According to Ministry projections, elimination of duties and purchase tax will reduce the price of consumer goods on average by 10 percent to 15 percent. More important, the Ministry said, is the fact that Israelis will have the opportunity to buy locally at the same prices they would pay online. The increased local sales will provide more VAT payments for the government, making up the losses from the other taxes. Online purchases are subject to VAT charges as well.
The government took in a total NIS 3.2 billion in import duties in 2016, including the high import taxes imposed on vehicles – which are not being eliminated. The government will “lose” at least NIS 800 million of that amount next year, based on Kahlon’s announcement. The reason the government can afford this project is because it has an excess of NIS 20 billion in collected taxes so far in 2017, which, except for funds to pay for a tax break for Israelis earning NIS 11,000 a month, is still available for spending.
Last week, Kahlon canceled import duties on baby products and eyeglasses. Included in the order are baby products such as carriers, baby seats, cribs, swings, walkers, pacifiers, bottles, and other nondisposable items. Also canceled were duties on eyeglass frames and lenses. Many Israeli opticians, like opticians in many countries, ship prescriptions to China, where eyeglasses are made and shipped back from. Duties on sunglasses had been canceled in the past.
Noted Monday was the absence of Prime Minister Binyamin Netanyahu at the announcement. Netanyahu is in Europe, leading reporters to speculate that Kahlon chose this week specifically to announce his plan, in order to “hog” the political spotlight for himself instead of sharing it with Netanyahu – in order to claim an accomplishment he can use in the next election, when they come. Kahlon, when asked about the timing of the event, simply said that Netanyahu was “up to date on what we are doing, and is fully supportive. This is a government plan we have been working on together,” he said.