IIA: Hi-tech accounts for 24% of all tax in Israel, 36% of income tax

Around 24% of all tax payments in Israel were from companies and wages in the hi-tech sector in 2020 and hi-tech employees made around 36% of all income tax payments in 2021, said Israel’s Innovation Authority (IIA) in a report released Tuesday.

This highlights the centrality of this sector in Israel’s economy, the authority emphasized, saying it is a key driver.The report also showed the importance of foreign hi-tech companies to Israel’s economy, finding that although foreign hi-tech companies make up only 0.3% of all businesses in Israel and foreign hi-tech company workers represent only around 20 to 25% of Israel’s hi-tech workforce, their work and corporate taxes account for over one-third of the total hi-tech contribution to state revenue.

Hi-tech activity revenue amounted to around 9.2% of the 2020 state budget, said the authority. This revenue was driven by the sector’s workers, and 85% of state revenue was from them, while 15% came from corporate tax, according to the report.

The dependence of Israel’s economy on income tax from the sector is growing, the authority noted, highlighting that income tax collected from hi-tech workers grew 66% in real terms between 2016 and 2021.

Women paid less than 19% of the income tax paid by hi-tech workers, although their proportion in the sector is around one-third, according to the report. This likely predominantly reflects lower average salaries for women in the field.

Underrepresentation of other sectors

Just over 97% of hi-tech income tax payments in 2021 came from non-ultra-Orthodox, Jewish workers, and 57% of these taxes came from non-ultra-Orthodox, Jewish men in central Israel, showing the underrepresentation of numerous populations in the sector.

The authority formulated recommendations based on the data from the report, including increasing diversity in the hi-tech sector to expand the employment base and removing barriers to multinational companies operating in Israel if such exist.

The authority also called for increased government investment in R&D infrastructure and start-ups in deep tech in order to maintain a technological advantage for Israel.

“This publication emphasizes the strategic importance of the hi-tech sector to the Israeli economy and state revenues,” said authority CEO Dror Bin.

“Hi-tech serves as the ‘growth engine’ of the economy and its ‘shock absorber’ during crises. The insights from this analysis reinforce the importance of government action to protect the sector and ensure its continued growth, even during economic slowdowns.”