Liquidation of NIS 200 bill could net Treasury NIS 22b

As part of Finance Minister Bezalel Smotrich’s promise to fight “black money” through advanced technology, a group of businessmen and former senior government officials have proposed an interesting, radical and surprising plan to combat untaxed capital. They propose to completely cancel the NIS 200 bill (Israel’s largest bill) because the blue notes have a large amount of “black capital” accumulated. Some assumptions may be overly optimistic, but the plan could bring in huge sums of money to the coffers when it is most needed.

The policy document proposes three key measures to combat black capital, which could enrich the public treasury by about NIS 22 billion, as about 80% of the value of current bills is held by the public, according to the Bank of Israel.

That’s a surprising statistic, since most capital transactions today aren’t made with large sums of money – but that’s exactly the point. Cash is used not for payments, but for accumulating capital and often for tax avoidance.

According to a study by the European Central Bank based on data from 2008, only one-third of bills held by the public were used for actual payments, and the rest as a form of capital accumulation.

It is not yet clear how likely this proposal is to be implemented. The proposal was presented to senior officials at the Ministry of Finance, the Bank of Israel and the Prime Minister’s Office on Thursday afternoon, and is sure to be in line with the Israel Tax Authority’s long-term goals of reducing the use of cash and significant reporting. transactions. Just this week, with the help of the Organization’s Israel Invoices program, the first arrest was made for issuing $135 million in false invoices, without paying $20 million in taxes.

Detection of tax evasion

The former head of Mossad’s Economic Warfare Department, Dr. Udi Levi, chairman of the Forum of Business Leaders Noga Keinan, Prof. Asher Tishler, former Dean of the Faculty of Management of Tel Aviv University, Eden Bar Tal, former Director General of the Ministry of Communications and Chairman of the Second Channel Organization, former Deputy Attorney General Adv. Raz Nizri, former chairman of the Israel Securities Authority Moshe Terry, engineer and entrepreneur Nurit Zeevi and Eyal Ofer, an expert on remittances in black economies.

It is safe to assume that not all of the cash collected in NIS 200 bills was used for tax evasion, but it is likely that a significant portion of it was. “In a modern country with a strong banking infrastructure, there is no reason for a business owner to keep a lot of cash because that makes them an easy target for robbery,” says Reuter. Zeevi adds: “It’s safe to assume that the vast majority of cash that isn’t used for actual purchases is used for capital accumulation and tax avoidance. In the end, people will buy a car or an apartment with it, or use it in some other way.”

Therefore, they suggest that the NIS 200 bill should be scrapped altogether. The Bank of Israel would shortly announce that these bills would be canceled and could no longer be used as legal tender, and people holding them would have to go to the bank and exchange them for other bills or deposit them. in their bank account. According to the proposal, “the move will allow for a drastic reduction in the amount of cash in circulation and expose tax evaders, who will have to report and pay to the exchequer to replace, deposit or lose these funds. they.”

The proposal emphasizes the importance of establishing a very short timeline for the exchange or deposit of bills, “The importance of exchanging or depositing bills is the only way to prevent promissory note holders from taking preemptive action and to encourage them to participate in the Tax Authority’s voluntary disclosure program. loss of money”.

Voluntary disclosure would be the next step in their proposed plan, which would allow those with large amounts of cash to deposit it immediately with “no criminal liability for failure to report income and pay preferential tax without penalties.” So, says Reuter: “The master who has been avoiding taxes until now will have to raise cash and will have both a stick and a carrot to start paying taxes legally.”

Overly optimistic assessments

The proposal states that “Past experience shows that voluntary disclosure measures have reduced the desire of tax evaders to reoffend” and thus tax payments are expected to increase regularly. In the future, voluntary disclosure conditions will become more stringent until there is no choice but to get rid of all NIS 200 bills. They believe that in this way it will be possible to collect 75% of the black capital accumulated in these bills today.

However, this may be an overly optimistic assessment, as capital can be raised in other ways, and even after the initial shock of abolishing the NIS 200 notes, one or other ways to raise capital will be found. But in the long run, they aim to make Israel a “cashless country” that will make tax evasion very difficult. According to Zeevi, “To be effective, all steps must be taken together. Otherwise, black capital will move from A to B.”

Other complementary measures in the proposal include expanding the obligation to report to authorities, banning the use of artificial intelligence tools and the large-scale use of cash substitutes such as precious metals.

But even if that’s an optimistic estimate, and even if the measure yields only a fraction of the NIS 21.9 billion the proposal claims could go into the state coffers, it’s a sum of money that could help shrink Israel’s bloated fiscal deficit. According to Bar Tal, “The options are deficits that will stifle growth or do the right thing. And in the long run, it will reduce the burden on taxpayers as the law dictates today.”

The “war on black capital” has become a cliché slogan for those who want to avoid painful but necessary measures such as cutting public spending or raising taxes. But Smotrich promised that extensive professional work has been done this time, including a focus on cutting-edge technology, which will reduce tax evasion and bring more money into the coffers. The burden of proof is now on him.

Globes, Israel business news – en.globes.co.il – published on September 8, 2024.

© Copyright 2024 by Globes Publisher Itonut (1983) Ltd.