The High Court of Justice heard a petition on Monday seeking to revoke tax benefits granted to donors to yeshivas that enroll students who are required to enlist in the military but have failed to report for service.
The petitioners argue that the benefits constitute indirect public funding for institutions that facilitate draft evasion, while the Finance Ministry maintains that there is no basis for a blanket revocation of the benefits.
The petition was filed by the Hofshit BeYisrael (Free Israel) movement through attorneys Dr. Haggai Kalai and Gal Brir against the Finance Ministry and Finance Minister Bezalel Smotrich. It focuses on the recognition granted to public institutions under Section 46 of the Income Tax Ordinance, which allows donors to receive a tax credit for qualifying contributions.
According to the petitioners, following a previous High Court ruling that the state may not fund yeshivas on behalf of students who are subject to military service, there is no justification for continuing to provide indirect support to those institutions through donor tax benefits. They argue that an institution that enables ongoing avoidance of military service cannot be considered a public institution entitled to tax advantages, and that maintaining such recognition undermines the rule of law and public policy. The petition states that the value of the tax benefits granted to donors to just four yeshivas exceeded 24 million shekels in 2023.
Attorney General Gali Baharav-Miara informed the court that she supports the petitioners' position. In her view, tax benefits should no longer be granted for donations to yeshivas attended by draft-eligible students who have not resolved their status with the IDF, because the resulting tax credits amount to indirect public funding for those institutions.
In line with her position, the Attorney General instructed the Israel Tax Authority to develop a mechanism for identifying the relevant yeshivas by cross-referencing student records with military data. Following that directive, the Tax Authority began contacting yeshivas and requiring them to declare whether they enroll students who are obligated to enlist but have not reported for service. Institutions found to have such students could lose their eligibility for the tax benefit.
Finance Minister Smotrich, however, had previously argued that existing approvals should not be revoked across the board based solely on the military status of yeshiva students. Nevertheless, after the Attorney General issued her opinion, professional officials in the Finance Ministry and the Tax Authority began preparing for the possible implementation of a policy change.
At the same time, Knesset Finance Committee Chairman MK Moshe Gafni has begun advancing a measure intended to prevent hundreds of nonprofit organizations from losing their tax-exempt status, citing the potential ramifications of the Attorney General's position.