Israel Increases VAT Rate from 17% to 18% By 2025

Israel’s Value Added Tax (VAT) rate has been a pivotal factor in the country’s fiscal policy and economic landscape. Recently, the Government approved the increase in VAT from 17% to 18% effective January 1, 2025.

Israel’s VAT system operates on a standard rate applied to most goods and services. The current VAT rate stands at 17%, but it is set to rise to 18% in 2025. However, it's essential to note that certain transactions are exempt from VAT, and others are zero-rated, including exports of goods and certain services.

VAT rate increase is expected to impact at different levels:

• Consumer Spending and Inflation: The VAT rate hike is likely to affect consumer spending patterns and inflation. An increase in VAT could lead to higher prices for goods and services, impacting consumer purchasing power.
• Business Operations: For businesses, especially those operating in the retail sector, the VAT increase may require adjustments in pricing strategies and operational costs.
• Government Revenue: One of the primary motivations behind the VAT rate increase is to bolster government revenue.
• Financial Sector Impact: Banks and financial institutions, subject to VAT-equivalent taxes based on payroll and profits, will also be affected by the rate increase. The adjustment from 17% to 18% will impact their operating costs and potentially trickle down to customers through fees and charges.

Find the official announcement.