Lockdown? Furloughs? January tax collection hits peak

The coronavirus pandemic does not cease springing surprises on the economic and fiscal plane. Unemployment and the fiscal deficit are at record levels, economic growth is negative, whole sectors are being kept alive by government aid, and yet the state's coffers are overflowing with taxes.

Yes, that's right: the tax collection figures for January were among the strongest for years. It's true that receipts from indirect taxes fell: duty on fuel, for example, yielded the state 20% less in January 2021 than in January 2020, a direct result of the third lockdown. VAT collection was also down 5%, which is consistent with a decline in consumption and more people working off the books. But against the predictable decline in indirect tax receipts there was a double-digit rise in revenues from income tax and companies tax: both yielded 13% more in January 2021 than in January 2020, before the coronavirus pandemic broke out, which makes the achievement all the more impressive.

The outstanding figure is companies tax collection, which shot up by no less than 70% in comparison with January last year. In numbers, we are talking about NIS 5.6 billion versus NIS 3.3 billion. The January 2021 figure is a multi-year peak, and the Accountant General's department at the Ministry of Finance has been trying to understand what lies behind it.

Economists with whom we spoke raised various possibilities, but found it hard to point to any single convincing explanation. It can be supposed, for example, that like many private citizens, companies in Israel also saved considerable amounts on expenses because of the lockdowns. Flights overseas, for example, or expenditure on power saved because offices were shut and employees worked from home. These savings translated into higher profits for tax purposes, hence the rise in tax revenues. At the Israel Tax Authority, the rise in revenues is attributed to, among other things, a successful year for financial companies.

The companies tax figures may be the most prominent, but there was improvement elsewhere too. Income tax collection from salaried workers rose 2.8% in comparison with January 2020, despite hundreds of thousand sf people being sent on leave without pay during the third lockdown. Public sector pay did continue to creep upwards in 2020, by slightly more than 1%, but still, 2.8% growth in tax collection cannot be explained without a rise in pay in the private sector.

There was also a little surprise for the Ministry of Finance in the figures for collection of purchase tax on imports. After the tax on vehicles was raised in January, the Ministry of Finance had expected a fall in revenues, as many people brought forward vehicle purchases to December. So Ministry of Finance officials rubbed their eyes when they saw the January figures: revenues were up by no less than 25% in comparison with January 2020. "We still don't know how to explain it all, but there's no doubt that there are many positive indications," a Ministry of Finance source said.