Are we headed for a dramatic shift in the real estate market? Sources inform “Globus” that the Ministry of Justice, the National Planning Administration and the National Planning and Construction Council have begun to help with the comprehensive reform of the improvement fee, including the possibility of completely abolishing the fee and the creation of a new mechanism. due to taxation on the increase in land value as a result of planning changes.
A local improvement levy levied on landowners following the approval of a plan or the granting of planning permission or the relaxation of planning regulations or approval in exceptional circumstances which results in an increase in the value of the land. use it. Except in certain specific cases, the levy is 50% of the increase in the value of the land and almost everyone with a property will pay the improvement levy at some point.
Billions of shekels worth of improvement fees are collected from property owners in Israel every year. The levies go directly to local authorities and are one of their main sources of income. Any change in this area, and certainly the abolition of the levy, will have a major impact on the finances of local authorities.
The drive to reform the betterment fee is led by Deputy Attorney General Adv. Carmit Yulis with Rabbi Natan Elnatan, Chairman of the National Planning and Building Council, and Rafi Elmaliach, Director of the Planning Administration.
The idea of a betterment fee is simple. A person benefits from an increase in the value of the property they own due to government action (usually through a local planning authority). On this account, and in accordance with the principle of distributive justice, the state “takes the value of the land” and imposes a tax on the local authority within whose jurisdiction the property is located. With this money, the local authority can fund planning and development costs in public areas, and indeed any public investment within its jurisdiction.
Over the years, this seemingly simple tax has become a bureaucratic monster. Improvement assessments determined by surveyors, which are often not uniform, are constantly contested by the taxpayer’s own surveyor and ultimately end up on the expert’s desk, in appellate committees and in the courts. Calculating the fee is complicated by the many regulations, plans and legislation that affect its implementation. Thus, a situation has arisen where a “land value capture” tool, meant to represent a specific element in the real estate world, has grown to such a size to help finance public investment, it has bloated to the point that it is delaying and giving up projects. causing endless debates. The planned reform seeks to change this reality.
“There are different opinions on the issue and that’s the step right now, but the situation will definitely not stay the same,” a source familiar with the details told Globes. Another source says: “There have been several voices calling for the levy to be abolished entirely, both in the Ministry of Justice and in the highest planning bodies – the National Planning and Building Council and the Planning Authority. In academic circles this view also prevails. So it is It is a tax that needs to be abolished and there are many problems with this tax, which mainly creates uncertainty in the sector.”
“This is a crooked, non-standard, frivolous method that harms the entire community,” says Amit Gottlieb, chairman of the Tel Aviv and Central branch of the Israel Builders Association. “We have created a confusing mechanism that costs us time, money and health. Land that I could sell in one year takes four years, but because of the uncertainty created by this mechanism. This is something that needs to be fixed.”
Abolishing the upgrade fee altogether is just one possibility being considered. Another is to keep the levy but change the way it is applied to make it clearer and more precise. Earlier this year, the Ministry of Internal Affairs published a draft law aimed at creating order in this area, but so far there has been no progress. Either way, there is a long way to go before the changes are actually implemented. One reason for this is the war. Another is opposition from various pressure groups, especially local authorities. The State Comptroller’s report published in July 2024 stated: “Revenue from development charges has a significant impact on the financial position of authorities and the funds they have available for public space planning and development and the construction of public buildings. therefore, for providing appropriate services to their residents in this regard.”
The report notes that in 2021, local authorities received a total of US$8.7 billion from improvement levies. According to the Knesset Research and Information Center, it totaled $3.6 billion in 2015, more than doubling revenue from this source in six years. .
Globally, betterment fees are not common and most countries use other methods to capture land value and contribute to the public purse. The State Comptroller’s report says that only 20% of the countries surveyed collect taxes like Israel.
Globes, Israel business news – en.globes.co.il – published on September 4, 2024.
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