The shekel is in a freefall against the dollar, trading at NIS 4.8650, 1.6% above Tuesday's representative exchange rate, NIS 4.7870, which was set before reports on the treasury's plans to impose capital gains tax.

Today's representative exchange rate was set at an all-time high of NIS 4.864, but the nosedive wasn't over and the shekel has weakened further.

An emergency economic plan, expected to be announced by the finance minister later today but largely already leaked to the media, includes capital gains tax and tax on interest-bearing instruments.

Keren Hoz, head of sales desk, treasury at Bank Discount, said that the issue of imposing a tax on the capital market is still vague. Had details been clear-cut, the dollar would have climbed to NIS 4.90. Hoz said that spreads have shrunk slightly to 80 basis points, but they are still relatively high compared with routine trading. "Customers are still waiting, and aren't making long-term deals due to uncertainty," in Hoz's opinion.

The dollar has broken through the NIS 4.8150 technical resistance level, and the market's target is now NIS 4.92. "NIS 4.85 is the stabilization level, dealers are waiting to see what's next," Hoz explained.

In the early morning, dealing rooms reported very active trade with spreads as high as 2 agorot. Dealers reported that business sector sell orders moderated 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.