Israel ‘Aliyah’ Tax Seen Likely

Prime Minister Ariel Sharon’s goal of attracting another 1 million Jewish immigrants in the next 10 years will suffer a setback if pending legislation to tax foreign investment income and pensions of immigrants is approved by the Knesset in the next two weeks, according to Yuli Edelstein, deputy minister of immigrant absorption.
"It would be terrible," Edelstein said during a visit to New York this week.
He added that he and Natan Sharansky were the only ones to vocally oppose the legislation when it was presented to the Knesset. The Knesset approved it in its first reading and sent it to the Finance Committee. Edelstein said it would become law after the second and third readings, which will be held before July 25 when the Knesset recesses for the summer.
"It passed on the first reading by a serious majority," Edelstein said. "I don’t want to say [its passage] is a fait accompli, but I’m not optimistic about the chances [of defeating it]."
He said Sharansky met with Sharon to press his objections to the bill but that Sharon just took notes.
"He did not see a great response [from Sharon]," he said.
The proposals, which come at a time of deep budget cuts in Israel to pay for the continuing war effort, are part of an overall tax-reform bill. The overall tax reform would raise taxes on capital in return for lowering taxes on income.
Dan Biron, the head of the Jewish Agency’s Aliyah Center in New York, said he has recommended to Israeli immigrants that they voice their objection to the bill to members of the Knesset.
"I hope and pray it will not" adversely affect immigration, he said.
Immigration from the United States has been running 20 percent higher this year than last year, and Biron said he expects that by the end of the year more than 1,500 American Jews will have made aliyah this year.
But Howard Kahn, who made aliyah 18 years ago from Queens and is now a counselor to immigrants for the Association of Americans and Canadians in Israel, said his office has received calls from Americans saying they are "putting their [aliyah] plans on hold to see what happens" to the bill.
"The main problem with the bill is that it is retroactive," Kahn said. "I’m 50 and had worked only four or five years before I made aliyah. But if I was a retired teacher who had a pension and made aliyah 15 years ago, I would have been told at the time that my pension would never be taxed by Israel. To tax it now is reneging on that understanding. You know the expression, ‘You can’t change the rules in the middle of the game.’ So why should it be made retroactive?"
Under international agreements, Social Security is not taxable by Israel, but under the legislation dividends, income from certificates of deposit and other passive income would be taxed by Israel. The amount of the tax would depend on the person’s tax bracket. If the U.S. taxes the pension at 20 percent instead of 30 percent had the retiree lived in the U.S., Israel would impose a tax of 10 percent.
Kahn noted that the U.S. imposes a similar tax on foreign-born immigrants who receive income from abroad.
"They want immigrants to be equal to the persons who live here their whole lives," said Kahn. "They don’t want some citizens having it better than other citizens. There is a point to that. If they want to change the law to make everyone equal, that is their business. But it shouldn’t be retroactive."
He said that immigrants had been promised that their passive income would not be taxed for 30 years and that the legislation would make it taxable after only 10 years, starting from the date the person immigrated or the day the law takes effect, whichever is later. Pensions, instead of being totally free of taxes, would be subject to taxes after five years.
"If this additional taxation is imposed on new immigrants," Edelstein warned, "it would defeat aliyah."