Israel's Value Added Tax, tagged on to all service and trade transactions, is likely to increase. The move is part of a stimulus package that otherwise calls for a reduction in taxes on earned income.
During a meeting late into the night on Monday, Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz decided to raise the VAT rate by one percent as part of efforts to reduce the projected national deficit. If the proposal meets government approval, the new rate will be 16.5 percent. Increasing VAT is expected to generate almost 2 billion NIS in additional tax revenue annually.
The meeting between senior Finance Ministry officials and Prime Minister Netanyahu was called to work out the details of a larger economic stimulus package. The government is slated to vote on the budgetary measures on Tuesday.
Although the VAT proposal is a tax hike, a key component of the Netanyahu economic strategy is to stimulate the economy through tax cuts. In April, the Prime Minister announced an immediate cut of one percent in corporate income tax and an additional one percent cut in personal income tax in 2010. He also said he plans to cap personal income tax rates at 39 percent (as opposed to the current 46 percent) and corporate income tax rates at 18 percent (as opposed to 26 percent) within the next six years.
"We have to cut taxes to be more competitive and capture a larger market share," Netanyahu said at an April 23 press conference with Finance Minister Steinitz.
On the other hand, alongside lowering income taxes, the Netanayahu-Steinitz plan also calls for ending select key tax exemptions. Additionally, the Finance Ministry had called for raising taxes on "luxury items" on which the 
His policies earned praise in the global financial and business sectors.
nation's wealthiest sectors spend money. Taxes funneled to the National Insurance Institute may increase through a rise in the maximum salary level at which earners are still liable to pay into the system.
Netanyahu declared that his stimulus strategy is "intended to put a break on the repercussions of the global crisis on the local economy, to preserve jobs and jump-start the economy. We have succeeded in doing this before and we will succeed in doing this again."
The Prime Minister was referring to his stint as Finance Minister in the Sharon administration from 2003 through late 2005. At the time, amidst controversial socioeconomic welfare spending cuts, he reduced personal, corporate, and VAT taxes across the board. His policies earned praise in the global financial and business sectors.
By 2004, Netanyahu declared, "We cut VAT and income tax, and the more we cut, the more tax revenues increased."