CASH UNDER FIRE: Israel Considers Eliminating 200-Shekel Banknote as Tax Chief Warns of “Brutal” Budgets and Massive Tax Hikes
Israel’s Tax Authority is renewing its push to eliminate the country’s 200-shekel banknote, arguing that restricting cash transactions could generate tens of billions of shekels in additional tax revenue annually and spare Israelis from substantial tax increases in the coming years.
Speaking Monday at the annual conference of tax advisers in Eilat, Israel Tax Authority Director Shay Aharonovich warned that the government faces an increasingly severe financial situation, with enormous defense expenditures and continued military operations threatening to force painful economic measures in 2027 and 2028.
According to a report by Ynet, Aharonovich said that eliminating cash transactions altogether could bring the government an additional 20 billion to 30 billion shekels annually in tax collections by combating unreported income and illegal financial activity.
“I am stating here in the clearest possible terms that if we eliminate the use of cash in Israel tomorrow, it could generate an additional 20 to 30 billion shekels in annual tax revenue and prevent other painful measures,” Aharonovich declared. “But the Bank of Israel opposes it.”
The proposal to discontinue the 200-shekel note, Israel’s highest-denomination banknote, has previously generated considerable controversy. Aharonovich nevertheless maintained that reducing the availability of cash is essential to addressing widespread tax evasion and financial misconduct.
He pointed to recent police investigations, including cases involving local municipalities, as evidence of the problems associated with large cash payments.
“We will have to eliminate some cash payments, which have already been restricted recently,” he said. “The Bank of Israel opposes eliminating the 200-shekel note, but we have seen in police investigations what happens with cash payments, including very recently in local authorities.”
Aharonovich also issued a stark warning about the government’s financial outlook, predicting that the next two national budgets will be particularly difficult.
“The budgets in 2027 and 2028 will be brutal,” he said. “Unfortunately, we do not see extraordinary economic growth coming next year, and we continue to fight on seven fronts.”
He estimated that Israel’s annual defense budget could reach approximately 200 billion shekels, with the extraordinary spending levels potentially continuing through both 2027 and 2028.
The Tax Authority chief expressed skepticism about political assurances that taxes would not increase, arguing that the next government will have little choice but to introduce significant fiscal measures unless alternative revenue sources can be identified.
“We will have to demand and implement difficult measures, from eliminating the 200-shekel note to eventually eliminating all cash,” he said.
Aharonovich disclosed that a special team within the Finance Ministry is already preparing proposals for the next government aimed at increasing revenue without immediately resorting to broad tax increases.
He also criticized what he described as excessive military reserve mobilization expenditures, suggesting that defense spending has expanded without sufficient scrutiny.
“There is a complete lack of restraint when it comes to calling up reservists, and nobody challenges the defense establishment,” he said. “It is already clear that an annual defense budget of 200 billion shekels will force the next government to raise taxes.”
Rather than immediately increasing the value-added tax or personal income tax rates, Aharonovich urged policymakers to pursue more targeted measures.
Among the possibilities under consideration is tightening legislation governing retained corporate profits, a move intended to increase government revenue from funds accumulated within companies.
He argued that such measures would be preferable to across-the-board tax increases that would directly affect consumers and wage earners.
“It would be better to take intelligent steps to finance the expensive defense budget than to seek easy solutions, such as immediately raising VAT by one percentage point and increasing income tax rates by one percentage point,” he said.
Aharonovich also criticized an earlier decision to abolish Israel’s property tax, suggesting that special interests had succeeded in eliminating a valuable government revenue source.
“A group of interested parties eliminated a good tax at the time,” he said. “If we do not come up with good, creative solutions, we will find ourselves facing a dead end, and then we will have to raise VAT and income taxes, which would be a bad solution.”
The proposal to eliminate the 200-shekel banknote is not new. In 2024, Prime Minister Binyamin Netanyahu directed officials to examine advancing the measure as part of a broader campaign against the underground economy and the extensive use of cash in unreported transactions.
Under the proposal discussed at the time, the 200-shekel note would gradually be withdrawn from circulation before eventually being discontinued altogether.
The Bank of Israel has opposed eliminating the denomination, and no final decision has been announced to remove the banknote from circulation.
Meanwhile, Yaron Gindi, president of Israel’s Chamber of Tax Consultants, agreed during the conference that tax increases appear unavoidable, but urged the government to distribute the burden more strategically.
Gindi proposed several changes to the tax system, including eliminating the existing tax exemption on residential rental income and requiring landlords to pay taxes beginning with the first shekel earned.
He also advocated taxing capital income from the first shekel while simultaneously reducing taxes on employment income, arguing that the tax burden should shift away from workers.
Another proposal would require all Israeli citizens to submit annual income reports, a change that would substantially expand the government’s ability to monitor earnings and enforce tax compliance.
{Matzav.com}
