Exceeded expectations: Tax Authority wants higher tax on retained earnings

The Tax Authority is formulating a move to raise the mandatory dividend distribution rate under the retained earnings reform from 6% to 8%, a step expected to add 1-2 billion shekels to the state treasury annually. Authority director Shai Aharonovich presented the plan at the Tax Consultants Bureau conference, against the backdrop of successful collection of about 20 billion shekels in the first year of the reform.

The Tax Authority is formulating a move to raise the mandatory dividend distribution rate under the retained earnings reform from 6% to 8%, despite fierce criticism in the economy about the harm to companies. The move is expected to add 1-2 billion shekels to the state treasury annually, beyond the billions already collected above forecasts. Tax Authority director Shai Aharonovich presented the plan at the Tax Consultants Bureau conference, saying "there is no money for the state" and that additional difficult steps may be required. The reform, which took effect in January 2025, brought in about 20 billion shekels in its first year - double the forecasts. Opponents, including the Tax Consultants Bureau and lawyers, argue that the tightening will drain companies' investment funds and harm growth. The Authority is also considering a temporary order that would allow an adjustment period before raising the threshold.