Impending End to VAT Exemption on Overseas Purchases Sparks Controversy in Israel

In a significant move to bolster its budget for 2024, the Ministry of Finance in Israel is contemplating the cancellation of the longstanding VAT exemption on purchases from abroad. The 17% automatic discount on overseas acquisitions is set to expire soon, marking a potential shift in taxation policy. This decision is part of broader efforts to tighten financial belts and raise taxes, but it has sparked a heated debate among stakeholders.

The head of the Tax Authority, Shay Aharonovich, supports the move, aligning with the Ministry's objective. Israeli retailers, seizing the opportune timing amidst the ongoing war and financial constraints, are applying moderate pressure to ensure the cancellation becomes a reality.

Recent news of the closure of the "Azrieli Com" website, operated by the Azrieli Group, added fuel to the fire. The Azrieli Group attributed its closure, after seven years of operation and losses amounting to NIS 300 million, to the unfavorable regulatory environment for electronic commerce in Israel. They particularly lamented the VAT exemption for international websites, which they claim puts local businesses at a disadvantage.

Shahar Turgeman, chairman of the Trade Chains Association and Beryl Group, advocates for the cancellation of the VAT exemption. Turgeman argues that the exemption results in a significant loss of revenue for the state, estimated at three billion shekels annually. He emphasizes the unfairness of the current system, which provides an advantage to online international purchases over in-store transactions.

In a letter addressed to the Minister of Finance, "Lobby 99" expressed opposition to the proposed cancellation, citing the exemption's importance during a period of rising living costs and economic challenges. They argue that the exemption not only allows consumers to purchase essential goods at lower prices but also creates competitive pressure, leading to reduced prices for similar products within Israel.

According to "Lobby 99," 90% of packages received through mail consist of basic clothing and footwear, contributing to a significant reduction in the cost of living. They refer to recommendations from the Competition Authority and the State Comptroller to increase the exemption amount. Additionally, they point to a Knesset research center report highlighting the positive impact of the VAT exemption on personal imports, particularly in reducing clothing and footwear prices since its implementation in 2016.

As the government contemplates this potentially unpopular decision, the timing remains uncertain. With the country currently facing the challenges of war and elections looming, the political implications of such a move could influence the final decision. Traders are closely watching the situation, acknowledging the resistance from consumers who have grown accustomed to the perks of online shopping.