The Marker, Hadar Horesh, 25.06.2020
Increasing the purchase tax for investors The entrance to the state coffers hundreds of millions of shekels. This is according to data released by the Tax Authority on Wednesday. The published data is billing data and not actual collection data, and does not take into account refunds.
The property tax on property investors increased from 5% to 8% in July 2015. As a result of the tax increase, the state's sales tax revenue increased 47% to NIS 2.975 billion in 2015. The increase in revenue was mainly due to investors buying more apartments in the pre-tax period to avoid it.
As a result of the tax imposition, investor activity began to decline, but state revenues remained high by hundreds of millions compared to 2014, when revenues totaled just NIS 2,029 billion. In 2016, state revenues fell 7% compared to the previous year, totaling NIS 2.77 billion, and in 2017 revenues plunged to a low of NIS 2.23 billion - 20% less than the previous year. However, that amount was still 10 percent higher than revenue in 2014, before the tax went up.
In the following two years, the purchase income tax on dwellingsclimbed: investors increased their activity in the housing market: the effect of the tax increase dissipated and some investors returned to the popular investment channel. In 2018, property tax sales on apartments rose to NIS 2.31 billion, and last year revenues rose by a similar rate, totaling NIS 2.559 billion. This is still 26% higher than the tax before the tax is imposed.
Ahead of the budget discussions, the finance minister is expected to revisit the return of the investor tax rate to the previous rate. The data does not provide a definitive answer about the effect of the tax reduction, and it may amount to a deduction of hundreds of millions of shekels in annual tax revenue. The increase in collection over the past two years and the expectation of increases in housing prices reinforce the assessment that the reduction of the tax will not lead to an increase in state income, as is sometimes the case.
The tax increase is mainly aimed at reducing investors' demand for apartments and thus affecting housing prices. But in the last two years, house prices have risen. Moreover, forecasts in the industry are that prices will rise again, as investors in apartments return to the market and increase the number of apartments they purchase despite taxation. The decrease in the number of apartments held by investors, as a result of reduced purchases and increased apartment sales, reduced the rent of apartments for rent and increased the pressure to increase rent.
Investors' return to the market may be compounded by the Corona crisis that hit some of the countries that were investment targets for overseas investors, and the decline in commercial real estate, given the decline in office rent.
Recently, the Minister of Housing made a proposal to reduce the purchase tax for investors in peripheral areas, in order to encourage construction there. Critics of the proposal fear that lowering taxes will raise housing prices on the periphery and hurt home buyers.