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ISRAEL'S wartime tax strategies: How does Israel think about financing its war economy?

war in Israel

Background to the war in Israel and its impact on the economy

The war in Israel is having a significant impact on the country's economy, particularly as a result of military spending and the destruction of infrastructure. These economic impacts call for strategic thinking on how to finance the war and support the businesses and individuals affected.

Importance of tax strategies to finance the war economy

Tax strategies play a crucial role in financing Israel's wartime economy. Measures such as tax increases, tax incentives and optimal management of fiscal resources are essential to sustain the economy and ensure financial stability during this difficult period.

Public finance and economic resource mobilization

The war in Israel highlights the importance of public finances and the mobilization of economic resources to support the country's economy. This section focuses on the measures taken to support businesses impacted by the war, the impact of the war on financial markets and the consequences for the Israeli economy.

Emergency aid plan for companies affected by the war

Emergency aid plan approved by the Knesset to support entrepreneurs and employees affected by the war in GAZA. The amount and objectives of this aid plan are designed to provide financial support to businesses and workers directly affected by the conflict. However, some critics point to the limits of this aid plan, considering it insufficient to cover the real needs of the companies and individuals concerned.

The impact of war on financial markets

The war in Israel is also having a significant impact on financial markets, with increased investment in the defense sector. Investors are looking to take advantage of the opportunities offered by the conflict, but this can also lead to uncertainty and fluctuations in the financial markets. Market expectations and reactions to the war vary, with some investors adopting a cautious approach while others seek to capitalize on the situation.

Consequences for the Israeli economy

The war in Israel is causing disruption and economic hardship for many businesses and individuals. Damaged infrastructure, business closures and job losses are having a negative impact on the country's economy. In the face of these challenges, the state plays a crucial role in supporting the economy and ensuring financial stability. Fiscal measures and emergency aid plans are examples of actions taken by the government to help businesses and individuals affected by the war.

Tax strategies in wartime

In times of war, tax strategies play a crucial role in financing conflict-related expenditure and sustaining the country's economy. This section will look at raising taxes to finance the war, providing tax incentives and managing tax resources to best effect.

Raising taxes to finance the war

One of the main fiscal strategies in wartime is to raise taxes to finance conflict-related expenditure. Examples of tax increases could include higher income tax rates, taxes on goods and services, or taxes on financial transactions. These increases have an impact on taxpayers and businesses, who face higher tax burdens in times of war.

So what are the practical solutions?

The tax department isn't closing the door today on where the country's missing billions will come from. It has been suggested that some of the costly tax exemptions granted to the public be reduced, including tax benefits on Keren Ichtalmout deposits, tax points for parents of children, and more.

However, according to tax experts, there are other sources of revenue and different measures that could enrich the state coffers. Among these measures, the experts mention:

  1. The introduction of a voluntary declaration, enabling citizens to report money they have hidden from the government without fear of criminal prosecution.
  2. Tax relief when funds are repatriated to the country.
  3. And a proposal unpopular with the public - the cancellation of the VAT on foreign online purchases up to $75.

Among the examples cited above, which would involve making a new voluntary declaration procedure, the Director of Tax Administration revealed that he intended to promote this approach with the Ministry of Justice. In previous voluntary declaration procedures, the state collected around 153 million shekels under the procedure that ended in 2019, and over 3.5 billion shekels under the procedures applied between 2014 and 2016. As a result, the Tax Authority sees this as a fast and efficient way of injecting money into the country.

The voluntary declaration procedure, in which the state has recently taken steps, has succeeded in bringing a wide audience of Israeli citizens to declare previously undeclared income and funds. Beyond this, the voluntary declaration process widens the scope of the circle of taxpayers even for future tax years. Thus, as part of this process, the state benefits from an increase in current collections and an expected increase in the future."

Release of retained earnings

Another measure that could inject tens or even hundreds of millions into the state coffers is the "Libération des bénéfices non distribués" operation. This operation made in 2017, during which the State allowed companies to release accumulated profits in the form of dividends with a reduced tax payment. Under this operation, companies distributed dividends totaling around 35 billion shekels and paid a total tax of 8.75 billion shekels. The amount recovered by this operation is well above the initial estimate of around one billion shekels.

It is undeniable that a one-off reduction in the tax rate, for example from 33% to 25% for a limited and short period, will encourage a large public of majority shareholders to make distributions as mentioned and in non-negligible amounts. The same reasoning also applies to facilitating the import of foreign dividends into Israel. This could be used to replenish the state's coffers. Many Israeli companies avoid repatriating trapped profits from Israeli-owned foreign subsidiaries because of the obligation to pay full or partial tax (due to credit mechanisms).

Introduction of tax incentives

As well as raising taxes, governments can introduce tax incentives to encourage investment and support companies in difficulty. For example, tax benefits can be granted to foreign investors who bring capital into the country in times of war.

Optimal management of tax resources

Optimal management of tax resources is essential to ensure a country's financial stability in times of war. Expert accountancy firms play a crucial role in this management, helping companies and individuals to navigate the complex and changing tax environment. The services offered by these firms include business set-up, accounting, tax declaration and banking services, enabling companies to concentrate on their business while meeting their tax obligations.

In conclusion, wartime fiscal strategies are essential for financing conflict-related expenditure and sustaining the country's economy. Increased taxes, tax incentives and optimal management of fiscal resources are all approaches that can be implemented to ensure financial stability during wartime.

Outlook for the future

The war in Israel raises important questions about the future of financing the war economy and the country's economic stability. This section looks at the role of fiscal strategies in financing the war economy, and the challenges of ensuring economic stability in wartime.

The role of tax strategies in financing the war economy

Fiscal strategies play a crucial role in financing the war economy, providing essential financial resources to support conflict-related spending and ensure the country's economic stability. Increased taxes, tax incentives and optimal management of fiscal resources are all strategies that can be implemented to finance the war economy and ensure financial stability in times of war.

Challenges to economic stability in wartime

The challenges of ensuring economic stability in wartime include the need to maintain a balance between the financing requirements of the war and the needs of businesses and individuals affected by the conflict. This involves finding solutions to minimize the impact of tax and duty increases on taxpayers and businesses, while ensuring that fiscal resources are used efficiently and equitably. In addition, it is crucial to support struggling businesses and encourage investment to stimulate economic growth and job creation, even in times of war.

In conclusion, the outlook for the future highlights the importance of tax strategies to finance Israel's war economy and ensure the country's economic stability in times of war. The challenges ahead are many, but with proper tax planning and the support of expert accountants, companies and individuals can navigate this complex and uncertain environment with greater confidence.

Strategic tax support

In summary, Israel's wartime fiscal strategies include raising taxes, providing tax incentives and optimizing the management of fiscal resources. These approaches help to finance conflict-related expenditure and support the country's economy. Tax planning and professional support offered by expert accounting firms, such as Dray & Natco, are essential to help companies navigate this complex and uncertain environment.

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Boruch Levenson - CPA

A native English speaker qualified in both Israel and the UK, Boruch cares for the English speaking clients.

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English speaking accountants in Israel
Address: Kanfei Nesharim 68. Merkaz Oranim
Phone number: 02 631 9000
Fax: 02 631 9005
Email: office@cpa-dray.com