Value Added Tax

Ever wonder how a tax can add value? Right here in Tel Aviv, we encounter the often-misunderstood Value Added Tax, or Ma’am as it’s known in Hebrew. The Value Added Tax is a consumption tax, applied to nearly every good and service you’ll encounter, from the falafel you eat to the bus ticket you buy. It’s a crucial part of Israel’s tax system and a significant source of government revenue. Value Added Tax isn’t unique to Israel. It’s used in over 170 countries worldwide. However, the Value Added Tax in Israel has its own story. Introduced in 1976, the Value Added Tax initially had a standard rate of 12%. Over the years, this rate has fluctuated, reaching a high of 18% before settling at the current rate of 17% in 2015. One unique aspect of the Value Added Tax is that it’s levied at each stage of production. From the raw materials to the finished product sold to you, each business adds value and pays tax on that added value. This system, while complex, helps ensure efficient tax collection. What’s interesting about Israel’s Value Added Tax is that certain goods and services are zero-rated, meaning no tax is applied. Exported goods are a prime example, encouraging international trade. Even within Israel, the city of Eilat enjoys a 0% Value Added Tax rate, making it a popular shopping destination. Even multinational internet giants like Google and Facebook aren’t exempt. They are required to pay Value Added Tax on services they provide in Israel, reflecting the digital age we live in. Furthermore, filing for Value Added Tax in Israel is done electronically, demonstrating a modern and efficient approach to tax administration. So, the next time you purchase something in Tel Aviv, remember the story of the Value Added Tax. It’s more than just a number on your receipt. It represents a complex system that funds essential services and reflects the economic realities of our globalized world.