HousingIsrael news photo: Flash 90

The Ministerial Law Committee on Monday approved for legislation a law that, if passed, would exempt first-time home buyers who match criteria set by the Finance Ministry from paying value-added tax (VAT) on home purchases. The law, proposed by Finance Minister Yair Lapid, has been a matter of great controversy in recent months, as critics accused Lapid of trying to prevent significant segments of the population, including haredi and Arab Israelis, from getting the benefit.

According to the final version of the law, the exemption will apply to homes valued at NIS 1.6 million or less, with the value based on a complicated formula that takes into account recent sales and sets an average price for a neighborhood. Only those who have served at least 18 months in the IDF will be eligible for the benefit.

For those who did not server, or served less than a full term, the exemption will apply for homes valued at up to NIS 950,000, a significant increase over the NIS 650,000 that had appeared in previous versions of the bill. Lapid had sought to bar Israelis who did not serve in the IDF from enjoying the benefit at all, but several ministers, including Housing Minister Uri Ariel, promised to prevent advancement of the bill altogether if Lapid did not relent.

According to the plan, first-time homebuyers would save 18% (the amount of VAT) on homes, and would be prohibited from selling the house for five years. The Bank of Israel has estimated that the VAT discount would cost the state 2.5 billion shekels in revenue.