Against the background of the dispute between the Treasury and Prof. Avi Simhon, Uriel Lin, president of the Association of Chambers of Commerce, proposes to reduce the tax rate on company owners that withdraw dividends to a level of 25% regularly.
According to Lin, this will encourage business owners not to "lock up" their profits, and will enrich the state coffers at a time when it needs money the most.
Lin told us that he spoke with many business owners, and they told him that they do not intend to pay dividends as long as the tax rate on the withdrawal of dividends does not return to the original rate as it was before the social protest in 2011 - 25%, which is the normative tax used in developed countries, so to speak .
Today, the amount of tax on a controlling owner who withdraws the dividend from the company is about 30% - a high tax rate that causes the owners of the companies not to withdraw dividends, and to wait for the tax authority's promotions to lower the amount of the tax for a fixed period.
These operations were successful in the past and brought billions into the state coffers from taxes.
Thus, the last operation of the Tax Authority held in 2017 generated revenues for the state treasury in the amount of NIS 15 billion.
"One of the most serious injustices a state can do to its business sector."
Uriel Lin, photo: Gideon Markovich
Now, in the budget discussions, this proposal came up again.
Prof. Avi Simhon, the prime minister's economic advisor, supports it - but the Ministry of Finance is strongly opposed to this operation.
First, the Treasury fears that business owners will withdraw dividends only during the promotion, and when it ends - they will stop distributing dividends because they will wait for the next promotion, and thus the state coffers will actually lose in the long run.
According to the finance officials, the dividend withdrawal operations are a form of selling the future for the present, and this will send a problematic message to the credit rating companies at a time when Israel is already under negative surveillance.
In addition to this, the Treasury believes, and rightly so, that this "card" of withdrawing dividends should be kept that will easily bring billions of shekels into the state coffers for a critical day, for example, if the situation in the north escalates sharply.
In any case, at the moment this proposal of tax benefits for owners of companies that draw dividends has not yet officially entered the budget proposal, and the current status is that the Prime Minister has asked to examine how "trapped profits" can be released.
And back to Lin's proposal - which on the one hand sounds like a good solution, and on the other hand could create distortions in the tax system where they want to collect a higher tax rate from controlling owners.
According to Lin, "the entire debate between Prof. Avi Simhon and the top of the Treasury regarding the lowering of the tax rate on dividend withdrawals is misdirected. The reduction of the tax on dividend withdrawals from a level of 30% or 33% to a level of 25% is not in terms of a benefit for the top thousand. This is nonsense Unnecessary demagoguery. Nowhere is it determined that the tax rate on the withdrawal of dividends must be 30% or 33% according to a decree from heaven."
Lin explains his approach to the issue: "A tax rate of 25% has always been considered the normative tax rate in this field. It was raised from 25% to 30% for a substantial shareholder and 33% for those with the highest income due to the social protest of 2011, and not From a business consideration, but to calm the minds of the demonstrators."
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