Committee Expected to Recommend Drastic Tax Cuts and Abolition or Curtailment of Many Exemptions

A special committee on tax reform is expected to recommend tomorrow that the rate at which Israelis pay income tax–said to be the highest in the world–be drastically reduced while many exemptions are abolished or severely curtailed. The committee, headed by Prof. Haim Ben Shahar of Tel Aviv University, will submit its report tomorrow to Finance Minister Yehoshua Rabinowitz.

According to reliable sources, the recommendations include a reduction of the tax rate from 87,5 percent to a maximum of 60 percent of income. If adopted by the government, almost 95 percent of the tax-payers will pay not more than 35 percent of their taxable income, economic experts said.

But the committee will also recommend the abolition of tax exemptions for professional literature, except for those professionals who can prove an absolute need for it; it will also call for an end to exemptions claimed for clothing and car expenses and for abolition of the special tax arrangements that apply to certain groups such as airline pilots who are paid partly in foreign currency.

The Ben Shahar committee was appointed by the Treasury to study tax reforms in face of the fact that the high tax rate discouraged many people from working overtime at a time when workers are being urged to increase their productivity. Rabinowitz has made it clear that although the government would adopt part, if not all of the recommended reforms, it had no intention of reducing its income. While direct taxes will be cut considerably, the difference will be made up by indirect taxes such as the 7.5 percent sales tax instituted by the government several weeks ago and an added value tax expected to be imposed this summer.

The Ben Shahar committee was acting on a purely economic level but political considerations are sure to enter the picture when their recommendations come up for discussion in the Cabinet and Knesset. The attitude of Histadrut is expected to be crucial to their adoption. Therefore, no one can say when the reforms will be implemented. Rabinowitz has promised that they would go into effect by July but most economists and jurists believe it is unrealistic to expect major tax reforms to be instituted in only three months.