I am very pleased to inform you that last week (October 15, 2007) the Knesset passed Draft Law No. 335, which (after a final vote in November) will result in the revocation and elimination of the Employer Tax as of January 1, 2008. I have translated the Law into English for your information and use.
This legislation will primarily affect all nonprofit organizations in Israel, and means that NGO’s will no longer have to pay 4% of employee salaries to the Income Tax Authority. This will provide a tremendous economic boost for the nonprofit Sector because employees of nonprofit organizations make up approximately 11% of the total labor force in Israel.
I have been lobbying, lecturing and writing about this discriminatory tax on nonprofits for decades, and this legislation is a truly historic event. It will save billions of shekalim for Israeli nonprofit organizations and enable them to use the money for more services, program development and administration. It will allow donors to get more results from their money, rather than subsidizing the government (without even being aware of this fact). The legislation shows tangible government appreciation for the work of the nonprofit Sector, which changed due to intense pressure and well-earned public respect for nonprofit work during the second war in Lebanon. There are still many abuses of the Sector that need to be fixed, but this legislation represents a significant start at a new and productive relationship between the government and the Third Sector in Israel.
Prof. Eliezer D. Jaffe`s Email: email@example.com
Source: Draft Laws 335 dated 15 October 2007, p. 76.
Economic Arrangements Law 2008 – Revocation of the Employers Tax
24. Employers Tax, 1975 – is revoked.
E X P L A N A T I O N
of the revocation and revision of the official records. Due to the [Income Tax] Administration’s many tasks, it is hereby proposed to allow the [Income Tax] Administration to delegate its responsibility to revoke and revise the official records, and that the aforesaid delegation of responsibility will be published in the Government Gazette. The Tax Authority Administration is empowered to make use of its powers of delegation given only to appointed officials on the district level or higher.
Sections 24, 25 and 26(b)
The Employers Tax is 4% of the basic salary paid by an employer that is a body of people, a corporation formed of human beings, to which Section 3(7) of the Income Tax Ordinance applies, specifically, amutot (nonprofit organizations) and local authorities. In the past, the tax was applied to all employers, but it was gradually revoked (except for NGO’s). It is proposed to revoke the Employers Tax on employment income paid beginning January 2008 and thereafter. The cost of this step is estimated as NIS 1.1 billion. Let it be emphasized that the total income from the Employers Tax is approximately NIS 1.4 billion, however, government Decision No. 1664 on 13 May 2007 revoked the Employers Tax in the Jerusalem Municipal district (only), beginning from January 2008 and thereafter, a step that will cost the government an estimated NIS 300 million.
In light of the proposed (total) revocation of the Employers Tax, it is also proposed to revoke the provisions of Sec. 8 (2) of the Encouragement of Capital Investments Law- 1959, which deals with Employers Tax benefits for government-approved companies (mif’al meushar).
The Employers Tax Law- 1975, and Sec. 8 (2) of the Encouragement of Capital Investments Law- 1959, as formulated on the eve of its onset, is presented as an Appendix to the Explanation.