A War-Tested Economy: State Tax Revenues Defy the Odds and Climb

The Annual Report by the Israel Tax Authority Indicates Significant Growth in State Revenues, Reflecting Economic Resilience and Tax Policies That Successfully Addressed the Challenges of the Economy During the "Iron Swords" War.

Israeli Economy on the Rise | Photo: Hadar Yuviyan / Flash90

The Israel Tax Authority’s annual report, published today (Monday), highlights the country’s ability to navigate the economic challenges of the “Iron Swords” war while maintaining financial stability and even achieving growth.

Nearly Half a Trillion Shekels in Revenues During Wartime

In December 2024 alone, state tax revenues reached 43.9 billion shekels, contributing to an annual total of 455.4 billion shekels. Despite the prolonged impact of the “Iron Swords” war on economic activity, the data reflects a modest but real increase in revenues, underscoring the resilience of Israel’s economy under challenging conditions.

Tax Policy Changes in 2024 and 2025 Boost State Revenues

The increase in the purchase tax on electric and plug-in hybrid vehicles in January 2024 created a rush among consumers to advance their purchases to December 2023, aiming to avoid the higher tax. These vehicles, known for their environmental benefits and promotion of green energy, typically enjoy tax incentives. However, the January tax hike reduced their economic appeal, prompting many to buy before the increase. A similar pattern emerged in December 2024, as consumers anticipated further tax hikes in January 2025, with early imports of these vehicles generating 4.7 billion shekels for the state.

New tax policies set to take effect in 2025 prompted businesses and consumers to act swiftly before the changes were implemented. These policies included:
A 2% surtax on investment profits.
Taxation on undistributed corporate earnings (profits retained by companies rather than distributed to shareholders).
An increase in VAT from 17% to 18%.
In anticipation of these changes, businesses distributed substantial dividends, and consumer spending surged in December 2024. This proactive economic activity contributed to a significant boost in state revenues during the month.

State Tax Revenues Surge in December 2024 Despite Wartime Challenges

In December 2024, state tax revenues increased by 22% compared to December 2023, a significant rebound following the constrained economic activity caused by the “Iron Swords” war. When compared to December 2022, the increase was more moderate, standing at 12%.

Steady Growth Throughout 2024

Looking at the entire year of 2024, there was a notable upward trend in state revenues:
Direct taxes, such as income tax and capital gains tax, rose by 4%.
Indirect taxes, including VAT and import duties, grew by 7%.
Revenues from government fees, payments made by citizens for public services, increased by 11%.

This growth in tax revenues, especially during challenging times, reflects not only the resilience of Israel’s economy but also a broader scale of economic activity by Israeli citizens, as evidenced by the expanded fiscal contributions.

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