A law on tax receipts is being introduced in Israel: how it will work

On March 5, 2024, a new tax receipt law will come into force in Israel, causing protests in the business world. According to the law, approved by the Knesset in 2023, transactions between businesses worth more than NIS 25,000 will require prior permission from the Tax Administration.

The law should be a serious obstacle to the issuance of fictitious tax receipts (heshbonit mas) – a phenomenon that has become very common in recent years. Such receipts are used to reduce the amount of value added tax (VAT, in Hebrew – MOM). Business owners, in turn, believe that the new rules for concluding transactions will only strengthen bureaucratic barriers.

According to the law, which was supposed to come into force on January 1,The IRS will use a digital system to monitor business-to-business transactions. Each receipt over NIS 25,000 will be assigned an authorization number when the receipt is issued. In other words, each transaction will require prior approval from the fiscal authorities.

Fictitious receipts are one of the methods used to reduce the amount of value added tax (VAT, in Hebrew – MOM).

Attempts by the business community to repeal the law or at least delay its implementation were unsuccessful. As Ynet learned on Thursday, April 25, in March, representatives of entrepreneurs proposed to freeze the implementation of the law until the beginning of October due to the ongoing war. Leading employees of the Ministry of Finance replied: “There will be no delays, the decision has been made.” The position of the officials was supported by Finance Minister Bezalel Smotrich, who, together with the former head of the Tax Administration, Eran Yaakov, actively promoted the bill on receipts.

The current head of the Tax Administration, Shai Aaronovitch, told Ynet in mid-April: “The law, designed to prevent cases of fraud, will come into force on May 5 without any delay. This measure is necessary to combat tax crimes.”

One of the reasons for the intransigence of the Ministry of Finance is the need to reduce the budget deficit, which is growing due to the war. According to the financial department, the implementation of the law will replenish the treasury with hundreds of millions of shekels this year.

►How will permitting help combat fraud?

Currently, the state learns about the issuance of fictitious receipts only after the fact, when the damage to the treasury has already been done. Those who deceive the tax department may include not only ordinary fraudsters, but also members of criminal gangs and terrorist organizations. It is not possible to identify them immediately. Preliminary issuance of permits should facilitate the task of the fiscal authorities. If there is a suspicion that a fictitious transaction has been concluded, the parties will not receive a number and the transaction will be considered invalid.

►What changes are expected on May 5?

A business that has received a receipt from the second party to the transaction for an amount exceeding NIS 25,000 (excluding VAT) will not be able to write off tax on the additional value without receiving a 9-digit registration number (mispar accaa) from the Tax Administration. More serious changes will occur on January 1, 2025, when tax authorities will begin individual consideration of each application for approval of a transaction.

►How to get a registration number?

Authorization will be issued in real time, similar to approval of a credit card transaction. If a business uses software linked to an IRS website, the owner or person in charge will need to conduct a transaction on their website, then log into their account on the IRS website and request permission. A document indicating the registration number will be issued automatically.

If a business uses receipt books filled out manually, you need to open a personal account in the section of the Tax Administration website designed for processing analog documentation. To obtain permission, you must enter the receipt number and submit a request. The number received from the IRS must be written down manually on the back of the receipt.

►How to check the authenticity of the number?

It’s very simple – go to the IRS website and enter the number. At the same time, you will be able to find out whether the transaction details registered on the website match the physical receipt.

►The business has several owners. Can each of them apply for permission?

No. In such a situation, the co-owners must decide which of them will be the main responsible person (murshe al), and notify the IRS of the decision by filing a statement signed by an attorney. For limited companies (Company Limited) A different procedure will apply – after registration, every adult employee authorized to do so by the owner or management of the company will be able to apply for permission.

►Will the amount required for authorization change?

Yes, it will change. According to the law, in 2025, permission will be required for transactions whose amount exceeds 20,000 shekels, in 2026 the ceiling will be lowered to 15,000 shekels, in 2027 – to 10,000 shekels and in 2028 – to 5,000 shekels. In other words, the maximum amount exempt from prior approval will be reduced by NIS 5,000 annually over the next four years.

►Can I appeal a refusal by the Tax Administration?

If denied, the business owner may request a hearing at an IRS review center. The law requires a hearing to be held within two days after filing an appeal – in a personal meeting or remotely, as agreed between the parties.