Israelis will have to spend more when shopping abroad

It's true that packages sent to Israel from abroad are experiencing delays, and some Amazon sellers are boycotting Israel. But is it worth the wait and the potential instances of antisemitism to enjoy a VAT (value added tax) exemption on packages costing up to $75? Unfortunately, it seems that the automatic 17% discount on overseas purchases may soon be a thing of the past.

As part of efforts to tighten budgets and raise taxes in preparation for the 2024 budget, the Finance Ministry plans to eliminate the VAT exemption on purchases from abroad, something that the department's staffers have been advocating for years. The head of the Israel Tax Authority, Shay Aharonovich, is also in favor of this move.

Israeli retailers, recognizing the favorable timing amid the ongoing war and financial strain, support the move and are applying moderate pressure to make sure it goes through.

The recent closure of the "Azrieli.com" website, operated by the Azrieli Group, after seven years of operation and losses amounting to NIS 300 million, highlights the fact that e-commerce in Israel is not adequately developed and lags behind international websites. Local regulations, such as the VAT exemption exclusively applicable to international websites, were cited as factors exacerbating the situation.

It is worth noting that, alongside its unsuccessful attempt to establish a competitive Internet platform, the Azrieli Group profits significantly from retailers who are financially threatened by VAT-exempt shipments.

Shahar Turgeman, Chairman of the Trade Chains Association and the Beryl Group, believes that the exemption should be abolished. "I have personally met with four finance ministers - [Moshe] Kahlon, [Israel] Katz, [Avigdor] Liberman, and [Bezalel] Smotrich - and they have all acknowledged that this exemption is foolish and nonsensical. However, none of them dared to address it, fearing potential political backlash."

According to Turgeman, "I explained to Smotrich that I was there to discuss aid for the business sector, but let me mention a considerable and readily available budget source. He had no idea about the extent of revenue lost due to this exemption - a staggering NIS 3 billion per year. I proposed a solution: sign 17% discount vouchers for Israeli citizens, but only if they purchase domestically. This conditional discount would serve as a virtual check that encourages domestic shopping and discourages overseas purchases. Can you find any fault in this?

"There is an inherent distortion here. It's unfair to deprive consumers who physically go to stores compared to those who shop online. It's time to rectify what has been neglected for years due to frequent election campaigns. Now, in times of war and when we are in desperate need of funds, we should not encourage jobs abroad but rather tax income generated within our own borders.

"If you lower prices, consumers will buy from you. Goods from abroad are often cheaper and of higher quality than those in Israel.

"This argument is commonly raised. If shopping abroad is 50% cheaper than in Israel, why should there be a VAT exemption? Why should the discount be increased to 67%? Even with this gap, people will continue to shop overseas. Big retail chains can cope, but what about medium and small businesses?"

Would making overseas shopping make Israel's high cost of living worse?

In a letter sent last week to finance minister, the nonprofit Lobby 99 urged him not to abolish the exemption. "Especially now, with rising cost of living and a significant portion of the public struggling financially, facing eviction, or having lost their livelihoods, the importance of the exemption cannot be underestimated," they wrote.

"Not only does it enable the purchase of essential goods from abroad at lower prices, but the competitive tension it creates leads to a decrease in the exorbitant prices of similar products in Israel. Thus, the exemption also benefits consumers who do not shop abroad." They also noted that State Comptroller Matanyahu Englman recommended raising the VAT exemption amount last year.

They further emphasized that 90% of packages received through mail consist of basic clothing and shoes. They referenced a report by the Knesset's research center, which states that the VAT exemption on personal imports contributes to reducing the cost of living for consumers of these products.

Additionally, data from the same research center shows significant drops in clothing and footwear prices in Israel since the exemption was implemented in 2016, while food prices, which have limited to nonexistent personal imports, have increased sharply.