Israel raises VAT 1% to 17% in 2012

1st August 2012

Israel is to increase its standard VAT rate from 16% to 17% from 1 September 2012.

The government agreed this week on the rise as it has struggled to reduced the state deficit. In particular, the structural deficit has proven difficult to eliminate.  The plan had been for the rise to be implemented from today, 1 August. However, to gain political consensus, the new rate will not be introduced for another month.

The current Israeli VAT rate of 16% was set in January 2010.  The plan had been to cut it to 15.5% in 2011.  However, the continuing global downturn and the impact on the local economy meant this proposal was dropped last year.

There will be also be a rise in the income tax rate of 1% on lower incomes.  For higher incomes, the rise will be 2%.

Following this rise, the Palestinian Authority will be required to raise its standard VAT rate from 14.5% to 15.5%.  Under the terms of the Paris Economic agreement between the two territories, the difference between their respective VAT rates should be less than 2%.

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