On Thursday 1.7, the EU is about to impose VAT on personal imports from abroad, in any amount. To date, personal imports in the amount of less than 22 euros (85 shekels) have not been subject to VAT, so a person sitting in Berlin could order a small package from China without paying VAT at all.

The VAT exemption has created a number of problems: first and foremost, unequal competition between local businesses in Europe and manufacturers and distributors abroad. A person may come across the exact same product on a local and foreign site, and find that the product on the foreign site is cheaper – solely because of the tax gap. Second, the abolition of the exemption will reduce the possibility of VAT fraud and increase the VAT revenues of the member states of the European Union, by an amount currently estimated at about 7 billion euros (27 billion shekels). Those who will be most affected by the new law are large online trading companies like Amazon andeBay, And their suppliers in East Asia.

The exemption is being abolished as part of a comprehensive EU VAT reform, designed to increase integration and uniformity within Europe and reduce compliance costs – the excess costs required to pay taxes. Under the reform, any foreign business exporting EU products to personal use costs € 10,000 a year , Is required to register in a new system of withholding tax.

The system operates in the method One Stop Shop, That is, centralizes all the services that the business needs under one roof, without the need to rummage between government ministries and various authorities and between member states. Thus, in one fell swoop, the EU seeks to facilitate business twice: once by simplifying the VAT payment mechanism, and a second time by placing fair competition under the same taxation between them and their competitors abroad.

Australia led this policy trend as early as 2018, when it reset one of the highest exemptions in the world which stood at A $ 1,000 (NIS 2,460) and imposed a horizontal VAT on all imports to Australia.OECD Submitted in 2019 a report to the World VAT Conference, which offers practical tools for countries to collect withholding tax from the major digital platforms, similar to what the EU is currently doing in practice.

In Israel, then-Finance Minister Yuval Steinitz raised the exemption high to $ 75 in 2012, following the social protest. As part of this reform, products worth less than $ 75 (about NIS 250) are not subject to VAT at all, and products worth less than $ 325 are not subject to customs.

While most of the tariffs on electronics and clothing have since been abolished and made the exemption irrelevant, the VAT exemption continues to be significant and very influential. Just like in the EU, an Israeli who buys online from an Israeli business has to pay 17% more solely for tax reasons. In this way, Israeli businesses are forced to compete on unequal terms, and the state loses tax revenue.The exemption also applies to products worth more than $ 75, due to split shipments or false registration of the value of the product with the help of foreign suppliers.

The current government, when it comes to passing a budget, will have to deal with a deficit of NIS 169 billion. Reducing the deficit will likely require tax increases, and it may consider following in the footsteps of Australia and the EU, and abolishing the VAT exemption on personal imports. Abolishing the exemption could raise the cost of living but help local businesses compete fairly and reduce unemployment. Bureaucratically, withholding tax will require significant logistical reform in the tax authority and the Israel Post. Will the current government be able to do this? We will know in the coming months.

By Editor

Leave a Reply