Treasury plans to impose a 25% capital gains tax is boosting the dollar against the shekel to an all-time high NIS 4.855, 1.4% above Tuesday's representative exchange rate, NIS 4.7870, which was set before reports of the impending tax were released.

As a result of the news, the dollar climbed to NIS 4.83 after the rate was set. Late inteh day yesterday, Finance Ministry Director General Ohad Marani hinted in an interview with Israel Radio that the ministry may impose a capital gains tax as part of the emergency economic plan.

Dealing rooms report very active trade with spreads as high as 2 agorot at opening. Spreads have now decreased to 1 agora. Traders estimate the dollar will trade around NIS 4.85 throughout the morning.

Dealers do report that business sector sell orders are moderating the dollar's strong leap. "Many players are exploiting the high levels to sell dollars, particularly as the end of the month is approaching," one trader told us.

Dollar instruments are already taxed, making them more attractive than shekel instruments whose potential yields will be affected by the new tax.

The Rabinovich committee on tax reform was widely expected to recommend imposing tax on capital gains, which had been tax-exempt until now. The committee will probably also recommend imposing 25% tax on savings plans, whether linked to foreign currency, to the CPI, or non-linked savings plans, which are currently tax exempt. In addition, the committee is likely to recommend imposing 15% to 25% tax on bonds and on shares trading on the stock exchange. The tax paid on capital gains generated by bonds and shares will be based on the respective income of the taxpayer.

The committee is due to present its recommendations to Finance Minister Silvan Shalom at the end of May. Should the recommendations be accepted, they would become effective at a later stage.