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Israeli gov't to cut corporate, value-added taxes to boost economy

Xinhua, September 4, 2015 Adjust font size:

Israel will cut its corporate and value-added taxes in a bid to boost economic growth amidst global slowdown, Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon announced on Thursday.

The value-added tax (VAT) will be lowered by one percentage point to 17 percent, starting from Oct. 1, Netanyahu and Kahlon told a televised news conference, adding that corporate tax will be reduced from 26.5 percent to 25 percent, staring from Jan. 1, 2016.

Netanyahu said the move was aimed to encourage economic growth and "will provide exactly the incentive the economy needs amid global slowdown."

Kahlon said the cuts were made possible due to about eight billion shekels (2.04 billion U.S. dollar) unexpected surplus in tax collection.

Before the press conference, Israel's central bank governor Karnit Flug released a statement slamming the decision as "imprudent."

He noted that reducing the VAT rate by one percentage point will cost the state coffers some 4.8 billion shekels (about 1.22 billion dollars), adding that the move is "liable to lead to a further increase in the deficit next year, and to put it at risk to meet the deficit target of 2.9 percent."

The tax cuts followed a report by Israel's Central Bureau of Statistics, showing that the local economy grew by 0.3 percent in the second quarter of 2015, far below the official forecast of 2.7 percent growth. The slowdown was attributed mainly to slow exports and a reduction in investments.

The current 18 percent VAT is the highest it has been in Israel, where many struggle to make ends meet and the living costs is one of the highest among developed countries.

Netanyahu made VAT cut one of his main promises during his March 17 election campaign, vowing to draft a law to put the VAT on zero percent. Endit