Skip to main content

The barrage began right after the Rabinovitch Committee announced its recommendations for tax reform last Wednesday. No aspect of the report was spared the pundits' scorn.

Some of the critics were tax experts, others interested parties, and others interested parties in the guise of experts.

The comments made by Prof. Avi Ben-Bassat were most interesting. He listed several flaws and hinted at more, and advised the Knesset to amend them in order for taxation to be "efficient, just and applicable...The Ben-Bassat report, which the Knesset has in its possession, can be of assistance in this task."

If the Knesset adopts all the advice floating around, this reform will probably be as doomed as its predecessor, the defunct reform created by Ben-Bassat himself.

The big advantage of the Rabinovitch recommendations is that they factor in the political pitfalls that killed previous reforms.

Changes in tax methods are probably the most controversial issue. They involve serious economic interests, not only those of workers and investors but also of tax advisers. Moreover, there are professional issues of macro and micro economics to be considered.

Consequently, every proposed change stirs up a wide variety of opinions, and that's not a whole package of proposals. Every argument in favor of a given stance can be countered with an opposing argument.

Take the question of a uniform tax rate. The argument in favor of uniform tax for all capital market instruments is quite solid; it was based on this concept that the Ben-Bassat Committee recommended a uniform 25% tax on real profit.

Since the Rabinovitch Committee was surely aware of the advisable economic norm, its choice to recommend four or five different tax rates must have been made for good reason, and mainly from practical considerations. There is hardly any point in asking the Knesset to revisit questions of principle such as this.

This does not mean that the recommendations must be adopted to the letter. There is room for amendments and improvements, but these should not be taken too far. The recommendations should be adopted and integrated into the legal code without any substantive changes, to prevent their ending up in the trash can, like all previous tax reforms.

Smooth enactment of the reform into law will allow the treasury to focus on its primary mission of ultimately reducing income tax. Only if capital gains are taxed can the NIS 2.5 billion be found to finance income tax cuts in 2003.