The tax reform only comes into force on January 1, 2003, and will gradually be deployed over five years. But tax on various capital market gains is being levied from today, the first day of the new Jewish year 5762.

The levies starting now are individual tax on stock market investments, and tax on capital market interest.

Tax on profits from securities and other stock market vehicles will be imposed through a decidedly convoluted gradual mechanism of offsets, so investors burned from investments will not wind up owing tax on nonexistent profits.

The Rabonivitch committee on tax reform also recommended various exemptions from capital market interest tax for certain population groups, such as retirees whose primary income is pension, and poor individuals or families. This touches on tax on savings accounts and deposits.

The problem that needed solving was a purely practical one: how to avoid taxing people entitled to exemptions, and how to compensate then when the uniform mechanism taxes them anyway.

Hundreds of thousands of people are entitled to exemptions. Theoretically, they should get annual tax rebates, after filing their returns at the end of the Gregorian year (as opposed to the Jewish year).

But the treasury was well aware that unless a solution is found, the exemptions won't be much help to the poor, because the rebates will only arrive during 2004. Also, the Income Tax Authority was also worried about the nightmare scenario of hordes beating down its doors demanding exemptions. They would like the banks to handle the whole thing but the banks refused.

Ultimately, a solution was found. Instead of once a year, rebates of tax automatically levied on savings and suchlike vehicles by the banks will be paid during the year too, shortly after the bank charges the sums, and not only once a year after the annual returns are filed. The rebates will be returned directly to the taxpayer's bank account.

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Under the new law, depositors and savers will pay 10% nominal tax (or 15% real tax) on profits on their investments. The banks will collect the money and pass it into the Income Tax Authority.

Meanwhile, the banks and the ITA are still fighting over the manner in which the rebates will be paid. The banks claim they can't check who should get rebates and who shouldn't. They also argue that their role does not include subcontracting for the ITA.

ITA chief Tali Yaron-Eldar says the banks should charge the 10-15% from exempt people too, and transfer the money to the ITA. The tax will be charged at every station, when the account comes due or is opened, or at the end of the tax year. The income tax computer will then locate the exemptions and instruct the money be returned to the relevant bank accounts.

She did not specify a schedule for the rebates, but did emphasize that the money would be forthcoming during the year too, not only after its end.

Pensioners are easy for the ITA to locate, she added, through the National Insurance Institute data. The other entitled segments of the population are more problematic people who receive state allowances and the poor, who do not appear in the income tax roster.

The solution is for people who are not known to the ITA to visit an ITA tax assessor, around when the tax reform starts in January, and declare their income and grounds for requesting the exemption. The tax assessor will calculate their tax status and enter their names into the ITA computer system. But, Yaron-Eldar admits, many of people will not be receiving rebates in a timely fashion.

She estimates that the number of unknown entitlements could be as high as 200,000, and expects tens of thousands to choke up the assessors' offices come January.

Meanwhile, the ITA has begun training its staff how to handle petitioners. But the work will last months, Yaron-Eldar says straight out: tax charged by the banks won't be returned quickly in the months after the reform begins, because organizing the matter is a very complex process.