Finance Minister Avraham Shohat closed the Tel Aviv Stock Exchange this week after announcing a 10 percent capital gains tax on investments – the first time such a tax has been applied in Israel.
Announcing the measure Tuesday, Shohat said the capital gains tax represented a measure of social justice in taxation policy.
He said he did not expect the measure to cause any serious jolt to the stock exchange, but he closed the exchange until Sunday in order to give market officials and investors a chance to plan their investments in light of the announcement.
The ten percent tax on profits and dividends from investments “has been long in the air, much talked about,” Shohat noted. “Now it is time to act.”
The move followed Monday’s disappointing inflation figures for the month of July — 1.1 percent — confirming a current annual rate of inflation of 14.5 percent that far exceeds the 10 percent goal set by the government.
Market analysts tended to agree with Shohat’s prediction that the move will not adversely affect investors, especially since certain major areas of the market — such as pension funds – are to be exempted from the new tax.
The tax, if approved by the Knesset, will go into effect Jan. 1.
The policy represents a reversal for Prime Minister Yitzhak Rabin, who said in June that there would be no capital gains tax while he was in office.
Questioned about his earlier statement, Rabin said Tuesday that for the good of the national economy, the government had the right to be tight-lipped about the possibility of future tax moves.
He added that the new moves reflected the government’s determination to sustain growth, to put a lid on skyrocketing housing costs and to protect the public from rising inflation.
The finance minister, with Rabin’s support, also announced a series of reductions on purchase taxes and duties.
Computers and related commodities will now be sold in Israel effectively free of duty. Auto spare parts and air conditioners will also fall in price as a result of the new measures.
Finance Ministry officials maintained that the estimated $167 million that the government will earn from the proposed capital gains tax would go “back to the taxpayer” in the form of price reliefs and reductions.
In a parallel move, the Bank of Israel this week announced further liberalization of currency exchange laws. Israelis traveling abroad will now be able to take with them $7,000 instead of the $3,000 currently allowed. The new relaxation of currency laws will also permit more investment by companies and individuals in overseas stocks and bonds.
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