A Strong Blow to Smotrich: The Knesset Abolished Doubling the VAT Exemption for Online Purchases

SadaNews - In a notable political development within the governing coalition, the Knesset's plenum rejected a decision to raise the threshold for the VAT exemption on online purchases from $75 to $150, with a majority of 59 members against 25 supporters.

According to the Hebrew newspaper Calcalist, the decision represented a setback for Israeli Finance Minister Bezalel Smotrich, who had signed the decree two months ago, amid estimates that its implementation would lead to a reduction in Israeli treasury revenues by about one billion shekels annually, as translated by SadaNews Economics.

Initially, Israeli Prime Minister Benjamin Netanyahu had imposed coalition discipline requiring coalition members to support the decision, but he later retreated and allowed for a free vote, in light of opposition from several members of the Likud party. Netanyahu did not participate in the voting session after leaving to attend a security meeting, according to the newspaper.

As SadaNews Economics translated, contrary to expectations that the decision would pass during daylight hours, several Likud members voted against it, including the chairman of the Knesset Finance Committee, Hanokh Milbitzki, and Knesset member Eli Dallal, who serves as the coalition coordinator in the committee.

Following the vote, Smotrich criticized what he described as "economic leftism within Likud," considering that some party members are acting out of narrow electoral motives, as he put it, and announced his intention to soon sign a new decree to reintroduce the decision.

Conversely, Knesset member Eli Dallal viewed the doubling of the tax exemption as a "fatal blow" to the business sector and small enterprises, noting that the cost of living crisis in Israel is primarily linked to housing, rents, and food items, not to electronic purchases, according to SadaNews Economics translation.

The decision had come into effect two months ago as part of efforts to alleviate the burden on consumers amid rising living costs. However, its opponents saw it as a measure that could harm local businesses and reduce state tax revenues.

The vote reflects the extent of the disparities within the Israeli ruling coalition, particularly on economic issues with popular and electoral implications.