Ministry of Finance Plans to Extend 'Israel Invoices' System to All Transactions
The Tax Authority and the Ministry of Finance are preparing to expand the 'Israel Invoices' reform, planning to mandate allocation numbers for all transactions, regardless of amount, to combat fictitious invoicing.
The Tax Authority and the Ministry of Finance are promoting significant changes to the 'Israel Invoices' reform as part of the upcoming Arrangements Law, aiming to require an allocation number for every tax invoice, regardless of the transaction amount.
The reform, which took effect in January 2024, established that obtaining an allocation number from the Tax Authority is a prerequisite for clients to deduct VAT. Initially, the requirement applied to invoices exceeding 25,000 shekels (pre-VAT), but the threshold has been gradually lowered: to 20,000 shekels last year, 10,000 shekels in January, and 5,000 shekels as of last June.
Combating Black Capital
The mechanism is designed to curb the use of fictitious invoices—those lacking a real underlying transaction or containing forged/inflated data. Businesses failing to receive a real-time allocation number are denied VAT offsets and income tax expense recognition. Furthermore, the Authority pursues criminal and administrative proceedings against businesses suspected of issuing such invoices.
Data from the Tax Authority indicates that the system has successfully blocked approximately 34 billion shekels in fictitious transactions. Between the start of 2025 and May, the VAT value of blocked invoices reached 6.1 billion shekels, with about 1,000 suspicious invoices from 150 different businesses being intercepted weekly.
Future Outlook
Minister of Finance Bezalel Smotrich, speaking on the 'Bull and Bear' podcast, confirmed the ministry's intention to expand the system. 'The highlight was 'Israel Invoices,' which increased state revenues by 16 billion shekels. We are moving toward a situation where we will issue digital allocations from the first shekel,' the minister stated, noting that the move will primarily affect B2B transactions.
The Tax Authority is also addressing new methods of circumvention, such as criminal organizations hacking into corporate accounting systems and stealing identities to generate fraudulent invoices. Tax Authority Director Shay Aharonovich emphasized that the agency is continuously upgrading its monitoring and security systems to counter these evolving threats.
Preparing the Arrangements Law
The Ministry of Finance is preparing an extensive package of reforms for the next government. The agenda includes restructuring the tax system, potentially canceling income tax exemptions based on residency, and unifying tax rates. Other focus areas include pension savings instruments, securitization market regulation, and initiatives to retain high-tech talent amid the strengthening shekel and global AI development trends.
