Indirect Tax News - October 2019

Proposal for import VAT exemption for small consignments

In Israel, personal importation of products of up to USD 75 is exempt from VAT, customs, and other import duties (excluding alcohol, alcoholic beverages, and tobacco products). The personal importation of products worth up to USD 500 is exempt from customs duty (but subject to import VAT and purchase tax, if applicable). In 2017 the former Israeli Minister of Finance, Mr Kachlon, raised a proposal to increase the price for which VAT and customs exemptions applies to personal imports. The purpose of the exemption was to reduce the cost of living in Israel and to increase competition in the markets, which would reduce prices for Israeli consumers. 

BDO in Israel was involved in preparation of a study demonstrating the unfair competition that is created by allowing a VAT exemption on such importations, especially in an era of increased personal importation of goods over the internet in competition with local suppliers’ products, on which 17% VAT is due.

According to our study, the trends around the world lean towards abolishing VAT exemptions and creating on-line ’user friendly’ mechanisms for VAT payments, as demonstrated by the OECD. For example, the EU announced its intention to abolish import VAT exemptions for low value goods and to apply an electronic customs and VAT declaration that reduces the declaration burden for goods up to EUR 150.

Our conclusion was that the VAT exemption should be abolished in Israel as it distorts competition and provides an unfair preference to foreign suppliers selling to Israeli consumers as compared to local suppliers. Compliance with OECD principles suggest that VAT should apply equally based on the local consumption principle, with no preference given to foreign suppliers when selling to consumers.

A proposal to abolish the import tax exemption on personal importations was recently published. Nevertheless, as a new government has not yet been assembled after the last elections, it is difficult to estimate the chances that this proposal will be approved.

According to the new Israeli personal import regulations for personal importation relief from import tax and other regulatory requirements for licences and certifications, it should be noted that 'personal importation' is defined as importation not done through a VAT registered entity. Furthermore, under the regulations, the imported items must be in reasonable amounts and for the personal use of the individual importer or the importer’s family. Also, such importation cannot be for onward supply, production, or provision of services.

Ayelet Yitzhaki