Death and Taxes
Death and TaxesIsrael news photo: IRS

The Value Added Tax is to rise one percent to 16.5 percent on Wednesday, and produce vendors warn that if the Knesset allows the sales tax to be applied to fruits and vegetables, it will be political suicide for Prime Minister Binyamin Netanyahu.

"If Bibi had dared to say before the elections that he planned to impose VAT on fruit and vegetables, or had even hinted at it, I have no doubt that he wouldn't have won even five seats," Shimon Darvish, chairman of the traders' committee of Jerusalem's Mahane Yehuda market told the Globes business news agency.

Mahane Yehuda, one of the country's most widely-known open air markets for fresh fruit and vegetables, is a bastion of Likud support. Darvish said, "As far as I'm concerned, you can record this conversation, and let's talk in another three years. I'm telling you that Bibi will not dare come to the market; he's wise enough not to do that."

Bibi will not dare come to the market; he's wise enough not to do that.

Vendors demonstrated at the market in Jerusalem as well as at stalls in other major cities on Monday.

Food has been exempt from VAT since the inception of the tax, but Finance Minister Yuval Steinitz has proposed applying the tax to produce as way of reducing the projected budget deficit, bloated by the worldwide financial crisis and the resulting decline in tax revenues.

Farmers, wholesalers and vendors have said that implementing the VAT is totally impractical. Prices often change several times during the day, and most stall vendors are not equipped to deal with the paperwork involved.

The Finance Ministry has argued that there no longer is a reason to exempt fruit and vegetables from the tax because most of the produce now is sold in large supermarkets, a reversal of decades ago when supermarkets barely existed.

VAT and Inflation

Regardless of questions on the VAT and produce, the one-percent hike in VAT on Wednesday will affect durable goods and spark a higher than usual rise in July’s consumer price index, which usually is close to zero.

The rise in VAT, from 15.5 to 16.5 percent, represents a six percent rise in terms of comparison. One immediate effect will be a rise in gasoline prices of 2-3 percent, following a six percent hike on June 1.

Consumers also may have to pay more for water after the Knesset Finance Committee and the Finance Ministry finish working out details on the so-called “drought tax,” which actually is a hike in the price of water. The charge is to increase by nearly four-fold for families whose water usage is unusually high.