By Zvi Zrahiya

The Knesset is scheduled to hold the first of three votes on a tax reform bill today. The reform proposal was compiled by a panel headed by CPA Yair Rabinovitch.

If the proposal passes the first reading, it passes onto the Knesset's Financial Committee for evaluation. If it passes muster, it then returns to Knesset for two more rounds of voting into law.

The treasury hopes to pass the law before the Knesset recesses for its summer break, at the end of July.

Treasury officials were hard pressed by a technicality getting the proposal printed in time for the Knesset members to read it today.

The treasury also needs the House Committee's lenience, as a bill should be brought before the Knesset members at least 24 hours before voting is held, which would not be the case if a vote is held today.

If passed, the tax reform would kick in from January 1, 2003. Broadly speaking, taxes will be imposed on savings and capital gains, and tax on labor will be gradually reduced by 2008.

Taxes will be imposed on all savings programs started after May 2000.

Moreover, Israelis will also pay taxes on income made abroad.

Finance Committee members have several reservations about the proposal. One is to shorten the wait until tax on labor is reduced.

An association of companies traded on the Tel Aviv Stock Exchange wrote a letter to the Finance Committee, protesting that a tax on capital gains would have serious repercussions.

As taxing stock market gains is technically difficult, Rabinovitch suggested that tax be imposed, at first, on turnover irrespective of whether the taxpayer made or lost money on the transaction. Taxing turnover could irrevocably deter investors from the TASE, the association wrote, as well as cause harm to the companies.