The Treasury slapped a 15 percent tax on foreign currency purchases by Israelis travelling abroad last night and banned the transfer of foreign currencies by Israelis to relatives or friends abroad. But there was no new devaluation of the Shekel, as had been widely expected.
Finance Minister Yigal Cohen-Orgad said at a press conference that the new measures were intended to stop the drain of foreign currency from the country by closing loopholes in existing regulations. The Finance Ministry estimates that Israelis will spend about $1.6 billion on foreign vacations this year.
The tax is equivalent to the value added tax (VAT) currently paid by Israelis on goods and services at home. It applies to the payment in Dollars or other hard currencies for hotel accomodations and travel abroad arranged by travel agents in Israel for cash or by credit cards. There is no additional tax however on air, sea or bus tickets.
Travel agents who are responsible for collecting the tax said today that they were waiting for instructions from the Treasury on how to handle the technical details. In many cases, travellers paid for their trips well in advance and in other cases travellers have already returned but have not yet been billed.
The Treasury also rescinded the rule that allowed Israelis to send “gifts” to relatives or friends abroad up to $2,000 or its equivalent in other foreign currencies.
Merchants who pay in advance for foreign goods or services to be delivered at a future date will be subjected to the foreign currency tax. Henceforth, only goods paid for through banks against bills of lading and letters of credit will be tax free.
The new regulations were announced after a day of closed-door consultations between Treasury and Bank of Israel officials. The central bank acted swiftly to prevent panic buying of Dollars yesterday by ordering commercial banks to halt all foreign currency transactions.
Rumors that the Shekel was about to be devalued again after dropping by about 14 percent since the beginning of the month caused the black market rate to soar yesterday from 310 to 370 Shekels to the Dollar. The official rate was 265-$1. But the rumors proved false. The official exchange rate posted this morning was 269.56 Shekels to $1, a drop of only 1.5 percent. The black market rate promptly plunged to 235-$1.
Cohen-Orgad said at his press conference that the Treasury’s actions were urgent and could not await the formation of a new government. The inconclusive results of Monday’s Knesset elections make it likely that weeks or possibly months will pass before there is a new government. In the mean time, Cohen-Orgad said, all-out war must be waged against inflation.
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