Israel Tax Authority Plans Urgent Reforms to Boost State Revenues

The Israel Tax Authority is preparing urgent tax measures for the upcoming government, aiming to generate an additional 10 billion NIS annually and close systemic loopholes. Tax Authority Director Shay Aharonovich outlined the plans during the Contractors Conference in Eilat, noting that the proposals will be integrated into the 2027-2028 state budget and the Arrangements Law.

The two immediate measures slated for rollout are a property tax on vacant land and real-time online VAT collection. The vacant land tax is set at 1.5% to 2.5% annually, designed to compel landowners to accelerate development through combination deals or sales to contractors. Meanwhile, the online VAT collection mechanism will mandate immediate transfer of the 18% tax upon transaction execution via cash or credit. This reform aims to eliminate fictitious invoicing practices, projected to yield approximately 7.5 billion NIS per year.

In addition to these steps, the Tax Authority is addressing the upcoming expiration of the increased purchase tax on investment apartments, which stands at 8% to 10% and is scheduled to expire on February 28, 2027. Without legislative intervention, the rate will automatically drop to 5%, potentially reigniting housing demand among investors. Furthermore, the authority released a position paper recommending a travel tax starting in 2027, which could add up to 274 NIS per flight—amounting to 100,000 NIS per departing aircraft—and generate an estimated 1.1 billion NIS annually.

Aharonovich emphasized the critical need for swift coalition formation to pass a biennial budget for 2027 and 2028, citing economic challenges such as the reduction of US aid. He warned that holding further elections would deal a severe blow to the economy. Existing tax measures enacted in 2025, including the unindexed tax brackets, increased National Insurance contributions, and the higher VAT rate, will remain in effect through 2027.