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While you weren't looking: Jaw-dropping tax cut to tycoons

The front page of Israel’s main financial daily, The Marker, pretty much says all you need to know about the capital-government-military relationship in 2012 Israel:

Top headline: “They earned 120 billion – and will only pay  3 billion in taxes. A new proposal from the treasury to the tycoon companies increases tax break to 70 percent.”

Second headline: “Costs of gas rig security soars: The IDF demands 3 billion.”

The context here is that some of the largest companies operating in Israel have around NIS 120 billion worth of profits “stuck” inside the country: they haven’t registered the profits as dividends, so as not to pay corporate taxes, which would have amounted to about NIS 30 billion. The government is, as always, concerned about hurting their tender feelings and “scaring off investors”, so it’s bending over backwards to let them get away with as much as possible: The treasury originally demanded 25 billion, then the tax authority said 15 billion would be enough, then the finance minister, Yuval Steinitz, went down to 5 billion, and today, climbed down further, to 3 billion (and possibly as laughably little as 1 billion).

Meanwhile, the navy is asking for up to NIS 3 billion (for among other things,  acquiring four new warships) to do what the navy is supposed to do, which is to protect Israeli interests at sea. Only the interests, in this case, are not so much Israeli as Israel’s tycoons, who will be pocketing the vast majority of the profits from the gas fields. The previous estimate for the costs the state will incur in securing the rigs stood at NIS 20 million, and the commander of the navy told The Marker no more than three months ago that all the infrastructure for securing the gas fields was already in place.

In other words: Instead of gathering the actual taxes owed by tycoons – 20 billion or so – Israel agrees to take just 3 billion, and, literally on the same day, is required to pump these 3 billion back to the tycoons in the form of security for their gas rigs. What goes around comes around, and quickly, too.

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  • COMMENTS

    1. Mikesailor

      Is it any wonder that Mitt ‘Moneybags’ Romney has a scheduled visit to Israel? It may be a more lucrative place to hide your money and avoid taxes than even the Caymans or Switzerland if you are one of the uber-rich.

      Reply to Comment
    2. Noam w.

      Some very small business should pay out dividends, refuse to pay taxes on it, and force the courts to rule whether enforcing the tax on one business but not on another amounts to unfair discrimination.

      Reply to Comment
    3. Piotr Berman

      Good taxes are pigovian, i.e. they discourage bad behavior, for example, behavior that is bad for your health. In USA smoking is deemed bad, hence ever increasing taxes. In UE, driving and emitting CO2 is also deemed bad, with very heavy fuel taxes.

      Numerous studies showed that poverty leads to poor health, statistically speaking, while the rich are healthy. Thus the tax code should discourage poverty, with high taxes on consumption (the poor have to consume something after all, hopefully they also smoke and play lottery) and encourage being wealthy. Perhaps paying the rich to stay wealthy would be best, and this was roughly the essence of feudal system, but cutting or eliminating taxes is good too.

      Reply to Comment
    4. BOOZ

      Tax cuts for the fat cats? No kidding? Has Sarkozy started another political career in Israel ?

      Reply to Comment
    5. hadassah weinreb

      If Israel needs money for the IDF, merely ask America to increase it’s foreign aid. That’s what America is for isn’t it?

      Reply to Comment

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