El Al's Frequent Flyer Program Under Threat: Tax Authority Plans Crackdown
Benefits worth millions of dollars accumulated from business purchases flow directly into the pockets of executives. However, a potential tightening of tax enforcement could shake the profitability model of major Israeli loyalty programs, primarily El Al's frequent flyer club.
Every self-employed person and business owner knows the routine formula: buying office equipment, paying suppliers, and financing current expenses with a business credit card. The expense is recognized for tax purposes and reduces the business's tax liability, but at the same time, a quiet and rewarding mechanism is at work, padding the private account. The points accumulated in the background — airline tickets, shopping vouchers, and lifestyle benefits — flow directly into the private pocket of the business owner, without any documentation or taxation.
This creates a financial anomaly: the business deducts the expense legally, while the business owners and their families enjoy exotic flights and private purchases. It is a classic mixing of business activity and private life, where the business bears the cost and the individual reaps the rewards.
As revealed this morning (Thursday) in "TheMarker", hidden beneath the well-oiled accumulation mechanisms of credit card clubs is a systemic tax loophole. According to the official position of the Tax Authority, a benefit accumulated following a business expense is considered taxable income for all intents and purposes, and the taxpayer is required to report it. In practice, the reality on the ground is completely different. Industry estimates indicate that the reporting rate is near zero, partly due to the practical difficulty of monitoring and assigning value to individual points in a sequence of purchases.
This phenomenon is not limited to El Al's Fly Card, but encompasses all accumulation credit cards on the market, such as FlyAll and "Cash Pro" from CAL or SKYMAX from MAX. For credit card companies and airlines, these clubs are an extremely profitable growth engine that brings in tens of millions of dollars.
If the Tax Authority chooses to tighten enforcement and close the loophole, it will indeed enrich the state treasury, but it may crack the attractiveness of accumulation cards and shake the profitability model of customer clubs in Israel. No response was received from El Al or the credit card companies.
