Real-time VAT and daily settlement: How the Tax Authority's new plan will work

The Tax Authority is advancing a plan called "Israel Invoice 2.0 - VAT Online" to shift value-added tax collection to a real-time digital infrastructure. The new model ties tax liability to the actual deposit of funds in the bank account, rather than the invoice issuance date, eliminating the need for businesses to finance the tax during the credit period. Additionally, a track is proposed to separate VAT payment from payment to the supplier, aiming to eradicate fictitious invoices that cause an annual collection gap of about NIS 15 billion. Implementation of the reform is conditional on legislation and completion of the technological infrastructure.

The Tax Authority is advancing a new plan, "Israel Invoice 2.0 - VAT Online," aimed at changing the model for reporting and paying value-added tax and moving to real-time digital collection. The move comes against the backdrop of structural flaws in the existing system enacted about 50 years ago, and proposes a shift to automatic reporting alongside an attempt to reduce tax fraud. The current model requires businesses to report and pay VAT once a month or every two months, by the 15th of the month, based on the invoice issuance date, regardless of when payment is actually received. This harms the cash flow of businesses operating under extended credit terms and creates a "cash flow credit" for businesses that collect cash immediately. In addition, centralized reporting involves bureaucratic complexity and the collection of paper invoices. The core of the reform is connecting accounting software, cash registers, and payment methods via API interfaces to the Tax Authority's computers, and tying tax liability to the date funds are deposited in the bank account. In the case of installment payments, VAT will be paid according to the receipt of each installment. The Tax Authority will centralize transactions in a personal digital account and perform automatic daily settlement, with direct refunds to the bank account at the end of the day. To eradicate fictitious invoices, which cause an annual collection gap of about NIS 15 billion, a payment separation track is proposed: the purchasing business transfers only the net price to the supplier, and the VAT component is transferred directly to the Tax Authority, while issuing a digital "payment approval number." However, the mechanism will not prevent collusion between two parties in fictitious transactions, and the full effective step will be adopting a mandatory digital allocation from the first shekel. The previous reform, "Israel Invoice," mandated an approval number for invoices over NIS 5,000, but criminals split transactions to bypass it. An examination found that in 2025, transactions worth NIS 12.2 to 16.4 billion were diverted below the reporting threshold, with an additional revenue loss of NIS 2.2 to 3 billion. VAT collection totaled NIS 143.3 billion in 2024, about 30.2% of total government tax revenue, with estimates of NIS 145.5 and 167.2 billion for 2025 and 2026. Implementation of the reform is conditional on legislation and completion of the technological infrastructure.