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Cautious Celebrations As Housing VAT Cancelled for New Buyers

Cutting VAT on apartments is nice, but there are better ways that Yair Lapid can help the middle class, says one consumer group.
By Moshe Cohen
First Publish: 3/20/2014, 3:02 PM

Money (illustrative)
Money (illustrative)
Flash90

If Finance Minister Yair Lapid can remove the VAT charge from apartments, he can certainly do the same for more basic commodities that the middle class has trouble affording – like food and transportation. That's the message to Lapid from a consumer group called “Israel is Dear to US (Yisrael Yekara Lanu).” The term “dear” in the organization's name has a double meaning – both “precious,” and “expensive.”

In a letter to the Finance Minister, organization head Eyal Ofer congratulated Lapid for his plan to cancel the 18% value added tax (VAT) charge for first-time home-buyers. “We don't necessarily think this will solve the housing crisis, but any removal of VAT, which we consider to be the most unjust of taxes, is welcome.”

The ultimate payers of VAT are consumers, Ofer said, because unlike businesses, they cannot take a tax credit for expenses related to their operations; such credits offset the VAT businesses pay.

VAT is a regressive tax that is unjustly tagged onto many items that are basic needs for Israelis,” Ofer said in the letter. “Removing VAT from these items, such as basic food, transportation, electricity, water, pharmaceuticals, infant needs, and other things, will help all Israelis, without regard for family size, age, religious belief, ethnic background, or other criteria.”

To be eligible for the discount under Lapid's plan, families need to have had at least one family member who served in the IDF – thus excluding most hareidi and Arab families, as both groups generally do not serve. It is not clear if Lapid's condition would stand up to examination by the High Court. In the past, National Insurance child allowance payments were given only to families who had a member serving in the IDF, or who had received exemptions from service. Arab and leftist groups sued, and after several decisions by the High Court in the mid-1990s, the government eliminated the requirement.

In addition, the discount would apply only in special economic zones – mostly peripheral communities in the north or south. Married couples with two children would be eligible, and they would have to hold onto the apartment for at least five years.

But those issues would not apply to his organization's proposals, said Ofer. “We urge you to expand your proposal to encompass areas of the economy beyond housing, to services and products that all Israelis, adults and children, need and can benefit from,” he said. Lapid has not yet responded, the organization said.