Bitan suggested reducing VAT on food. How acceptable is this in the world?

Correct - The statement is true in the vast majority of cases.

Inaccurate - Substantial parts of the statement are incorrect.

Misleading - The statement creates a false impression or takes facts out of context.

Incorrect - The statement is wrong.

For your judgment - The factual situation is too complex to give an unequivocal grade.

Summary of the check

Claim: In OECD countries, VAT on food products ranges from 0% to 8%.

What is correct: In 19 member countries of the OECD, VAT on food products does not exceed 8%.

What is incorrect: In 18 other countries in the organization, VAT is higher - including five countries where the VAT rate is at least double that.

Grade: Inaccurate.

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How to lower the cost of living? The chairman of the Economic Committee, MK David Bitan, had an idea: "I suggested to the Minister of Finance that the VAT on basic food products be reduced to 8%," he shared on Galei Israel. The Minister of Finance, according to him, rejected the proposal for budgetary reasons, but Bitan claimed that this idea is already implemented in the developed world: "In the OECD, the VAT on basic food products is between 0% and 8%," he said. Is this true?

According to the review published by the OECD in 2024, out of 38 countries that are members of the OECD, 37 countries have a value-added tax (VAT), with the USA being the exception. Since Israel already has 0% VAT on fruits and vegetables only, we checked the VAT rates on other food products in the various countries.

Out of the 37 OECD countries that impose VAT, in 19 countries the VAT on basic food products is between 0% and 8% (although in Hungary the definition of basic food products is quite narrow). In 13 other countries, the tax is 9%-16%. In five countries, including Israel, the tax rate is higher than 16%.

So Bitan is factually correct, but it is worth addressing the substantive level as well. In the world of economics, there is a broad consensus that the uniform tax applied in Israel is actually appropriate, efficient, and "more just" than the differential tax that exists in many other countries.

The reason for this is that affluent households consume larger quantities of more expensive products, and as a result, their volume of consumption of goods and services that benefit from the tax break is usually greater than that of less established households. Indeed, data published by the Bank of Israel in 2023 shows that while food expenses account for 25% of the total expenses of households in the top decile, they account for only 15% of the expenses of households belonging to the bottom decile.

In addition, as written in the Bank of Israel's policy research, one of the central problems in setting a differential tax rate on food products is the problem of collection and enforcement, which has a significant budgetary cost. Today, the simplicity and efficiency of the VAT law lie in the principle of tax uniformity. Once this principle is compromised, there will be a need for increased supervision and monitoring by the Tax Authority of goods with a reduced tax rate.

According to the Bank of Israel, not only is this not possible within the manpower limitations of the Tax Authority, but its cost is so high that it is unclear whether there is an economic justification for it. The bank estimates the indirect loss of revenue that would result from such a move at about 25-30 billion shekels.

In response to our inquiry, MK Bitan said that in his words he did not speak about this being the situation in all OECD countries.

Bottom line: Bitan's words are inaccurate.