VAT-Free Overseas Buying at Risk

YERUSHALAYIM -

The VAT exemption on products purchased online from abroad worth up to $75 is on the way out, according to a report in Globes on Sunday, citing official sources.

The end of the exemption is slated to be part of a bundle of measures in the Ministry of Finance’s draft 2020 state budget designed to provide 20 billion shekels to meet the bulging deficit.

The ministry plans to bring the budget for Cabinet approval in December, and to conclude the annual battles over it in the Knesset by March. Assuming final approval, the exemption will be wiped out by around April.

“The volume of purchases exempt from VAT was most recently increased in early 2012 in response to the social protest against the cost of living in the summer of 2011. As of now, a delivery containing products with an aggregate value of up to $75 is completely exempt from VAT and customs duties. There are nevertheless a number of exceptions. The exemption does not apply to tobacco and alcohol, and does not include packages sent from the same supplier to the same customer at intervals of less than 72 hours,” Globes explained.

Cancelling the exemption will be subject to political exigencies, as well as financial considerations. Minister of Finance Moshe Kahlon has fought canceling the exemption, but the budgetary situation has created mounting pressure to do away with it. Taxes, too, are likely to rise despite Kahlon’s opposition. “It appears that the government will have no alternative to raising taxes, as Governor of the Bank of Israel Prof. Amir Yaron has made clear,” the paper said.

However, the official ministry position is that no such plan exists.

“The Ministry of Finance has made no preparations, and the senior professional staff will make no preparations, on the subject of the 2020 budget before a new government is formed,” Ministry of Finance director general Shai Babad said. “The entire system is waiting for the appointment of a new government and a new minister of finance to set a policy from which the professional staff can devise a work plan. A plan relying on internal work in one of the departments has no binding significance.”

If the exemption is canceled, Israeli consumers will certainly feel the effect, while fashion retailers and shopping mall companies expect to benefit, as competition from VAT-free purchases made life hard for them.

According to figures from the statista database, the ecommerce market in Israel, which was estimated at NIS 13 billion in 2018, is projected to grow to NIS 20 billion in 2023. The Israel Postal Company estimates that 70 million packages ordered from overseas will be delivered by the end of 2019. Ecommerce is estimated at NIS 2.3 billion in the fashion sector alone, according to the Czamanski & Ben Shahar consultant firm.