"The store owners took advantage of the increase in the tax on disposables and raised the prices of these products by 70% more than the tax required," according to the analysis of the research division of the Bank of Israel.
The Bank of Israel estimates that one of the possible reasons for this is that the tax was imposed based on weight, which made it difficult for consumers to compare the price before and after the increase.
Bank of Israel, photo: Oren Ben Hakon
A phenomenon recognized in the world
As a reminder, on November 1, 2021, the government decided to impose a purchase tax on disposable utensils that contain plastic at NIS 11 per kg. The purpose of the tax was to double the final price of disposable utensils to consumers in order to reduce their use, because they are harmful to the environment The Bank of Israel examined the effect of the tax on the price of one of the most common products: disposable plastic cups.
Avigdor Lieberman.
He is the one who determined that a tax would be imposed on drivers entering Tel Aviv, photo: Dodi Vaaknin
From the analysis, as mentioned, it emerged that the actual increase in the prices of the glasses was 70% higher than that derived from the imposition of the tax: an average increase of about 22 NIS per kg, compared to an increase of about 13 NIS (11 NIS plus the applicable VAT also on the tax) derived from the imposition of the tax.
"The price increase above and beyond the tax liability supports the possibility that the market does not operate in perfect competition because of the structure of the supply side of the market, or because the information available to consumers is incomplete," the Bank of Israel explains.
It was also noted that an excessive increase in the price after the imposition of similar taxes is a well-known phenomenon in the world.
In the current case, it seems that the difficulty of the consumers to identify the increase derived from the tax - a difficulty arising from the fact that the tax is determined on the basis of weight, which is difficult for the consumer to estimate - facilitated the excessive increase in the price.
The need to balance
The Bank of Israel went on to address the issue and even explained that the excessive increase in prices indicates the need to balance between a tax definition that simplifies its collection and is adapted to achieving its purpose and a definition that is understandable to the consumer.
Determining the tax as a percentage of the consumer price may make it easier for consumers to compare it with the actual price increase, but may cause difficulties.
Alternatively, it is possible to accompany the fixed tax by imposing an obligation to mark on the packaging its weight, and even the amount of tax applied to it.
were we wrong
We will fix it!
If you found an error in the article, we would appreciate it if you shared it with us
