10 Percent Value Tax Recommended; Basic Commodities Will Not Be Affected

An added-value tax at a uniform rate of 10 percent was recommended for the country last night by the public committee on tax reforms after months of deliberations. The committee, headed by Tel Aviv District Judge Moshe Asher, Includes members of all sectors of the country’s economy-private, cooperative, public and government. Its recommendation was in line with Treasury thinking. However, such basic commodities as bread, milk and eggs are to be exempt. The added-value tax has been general practice in many European countries, both those with Social Democratic governments and those advocating a free economy. It is a tax imposed on any gains derived from the handling of any goods, whether by working on and shaping them or by reselling them. The tax is imposed on the difference between the purchase price and the resale price.

Under the recommendations of the committee, however, small businesses with an annual turnover of less than IL 75,600 ($18,000) will not pay the new tax, but rather a straight sales tax as in most states of the United States. Finance Minister Pinhas Sapir has already announced that the added-value tax will not be levied before next summer. According to Finance Ministry circles, prices in Israel are expected to rise by 5 to 6 percent as a result. The Treasury stands to gain, at current prices, IL 1.26 billion ($300 million) from the tax. But the Asher committee is considering additional reforms in the country’s tax system that if accepted may curtail the government’s income from other sources. The committee’s vote last night was 8-4. The Histadrut representatives, who voted against recommending the added-value tax, do not oppose it in principle, but want it set at only 5 percent.