Tax Authority Eyes Higher Taxes on High-Tech Options
Tax Authority Director Shay Aharonovich is considering raising the tax on employee options from 25% to 30%. Critics warn that this move could drive away talent and harm the high-tech sector.
Taxation | The Tax Authority is considering taking more from high-tech workers, and the price could be heavy
This week, Shay Aharonovich, Director of the Tax Authority, toyed with the idea of raising the tax on employee options from 25% to 30%. The proposal: lower the regular tax, and in return, raise the tax on options.
Let's set aside the fact that the Tax Authority creates a complete mess when high-tech workers are fired; if they are not fully informed, they could face a tax burden of 50% or even an effective tax rate of 62%. Let's also assume that legislators often "forget" the carrots and legislate only the sticks.
It seems as if the Tax Authority has forgotten the findings of the Chief Economist's report. According to the data, 91% of all income tax in Israel, excluding National Insurance payments, comes from the top two deciles (77% from the top decile alone). Already today, the top decile pays the majority of income tax in Israel. The Authority's idea implies that the risk will be borne by the workers, while the state will enjoy more of the profit.
In game theory, there is a story about 10 friends eating together at a restaurant. At the end of the meal, an argument begins: the 5 poor friends expect the rich one in the group to pay for them. The two above them expect to pay less than the rich ones. In the end, the wealthiest person, who is expected to pay for 80% of the entire meal, gets angry and goes to find new friends.
Even if one does not accept the parable to the end, Israel should be careful before it drives away more high-tech workers. Already today, salaries abroad can be much more tempting. 14.5% of workers in Israel are employed in high-tech, an industry that has generated huge volumes of taxes for the state in recent years—tens of billions of shekels, perhaps more. Does anyone want these people to get fed up and leave?
Perhaps instead of increasing taxes all the time, it is time for Israeli governments to try, first and foremost, to reduce inflated expenses.
Netanel Ariel
