Israeli Officials at Loggerheads Over Import Taxes as E-Commerce Booms

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By Matthew Kalman

A simmering dispute over sky-high prices on consumer goods imported into Israel boiled over this week, with one ministry accusing Colgate-Palmolive Co., Unilever Plc., Procter & Gamble Co. and other major manufacturers of “gluttony” and treating Israeli consumers with “contempt.”

The unprecedented language in a statement released by Minister of Economy and Industry Eli Cohen came as the country’s antitrust commissioner and the Israel Tax Authority sparred over the fate of duties on personal imports. Combined with entrenched import monopolies, the import fees mean Israelis are paying two or three times as much as shoppers in Europe for everyday items including Colgate toothpaste, Nivea hand cream and L’Oreal cosmetics.

Israel’s Health Ministry postponed plans Sept. 7 to dismantle monopolies on imported cosmetics and health products, saying it had to protect the public from sub-standard items. As a testament to the hunger of Israelis for cheaper consumer goods, U.S retailer Target Inc. had to cancel hundreds of orders after it was deluged with thousands of responses to an offer of free shipping to Israel for just two days in August.

“The Israeli consumer is being milked by the international manufacturers and the exclusive importers. The time has come to put an end to this party. We will act with all our resources to halt the oppression of the Israeli consumer. You do not have to buy from someone who treats consumers with contempt,” Cohen said in an emailed statement Sept. 10. “International manufacturers and importers take advantage of exclusivity in representing international brands, creating high prices in the Israeli market, leading to unreasonable price gaps between Israel and the world.”

Cohen’s prize exhibit: A 75ml tube of Colgate Optic White Instant Toothpaste priced 3.7 times more in Israel than in Poland.

Cost of Living

An OECD survey published in 2016 found that Israel’s cost of living and incidence of poverty was among the highest of all member countries, and its market regulation was the most restrictive. The OECD urged Israel’s government to “simplify import procedures and align them with those in force in other developed countries.”

In recent years, Israelis have campaigned against the price of housing, mobile phones, cottage cheese and “Milky,” a popular chocolate mousse and whipped cream dessert selling for a quarter of its Israeli price in Berlin.

Consumer expectations that the import monopoly on toiletry and cosmetics imports—tightly held by two main companies—would be open to competition were dashed Sept. 7 when a health ministry official told the Health and Welfare Committee of the Knesset parliament that it was delaying publication of the regulations necessary to implement reforms introduced in recent legislation.

“We need to take a break in the process,” ministry Director-General Moshe Bar Siman-Tov told lawmakers, according to a Knesset press release. “It is proving difficult to make the leap forward between the existing situation and the future one.”

“Everyone wants to go ahead with the reforms that will create a better and easier situation,” he said. “We need to delay” while a delegation visits Europe to study implementation, he added.

The economy minister’s outspoken statement was issued three days later.

Level Playing Field

Meanwhile, the rapid development of e-commerce has allowed Israelis to source at least some of their goods from online suppliers. When Target announced its special two-day offer in August, it was reportedly overwhelmed with orders for quotidian items like razor blades and baby toys.

Israelis are not big e-commerce users, ranking 15th globally in online retail purchases, but they are in 3rd place worldwide in the value of goods they order from other countries, according to “The Real Price is the Price Abroad: Israel Switches to Internet Shopping,” a presentation posted June 4 by Elad Goldenberg, head of the eBay Israel Business Unit.

But consumer enthusiasm is limited by a $75 ceiling on personal imports free of value-added tax, and a $500 limit on purchases free of customs duty. The finance ministry is currently working on proposals to raise that threshold.

The Tax Authority wants the threshold to remain at its current level. Michal Halperin, head of the Antitrust Authority and Israel’s chief competition regulator, is agnostic on the tax but wants to see red tape dramatically reduced to simplify personal imports and increase competition. Local retailers and the current importers would like to see even the $75 allowance abolished, as is now being proposed in Australia.

Tax Discrimination?

On Sept. 14, the Federation of Israeli Chambers of Commerce took out a large advertisement in the Israeli business press to protest the “discrimination” of allowing tax-free personal imports while goods sold locally are subject to VAT and, in the case of cars, televisions, refrigerators, shoes, underwear, sportswear, tents, furniture and other items, additional customs duty of up to 83 percent.

“There is no problem with monopolies at all. This is a big nonsense,” said Uriel Lynn, president of the federation. “If we think the price is too high, we don’t have to buy from him. You don’t like the price of Colgate? Go to other suppliers. The Israeli public prefers Colgate toothpaste.”

Lynn said he supports the government’s efforts to reduce prices but opposes untaxed personal imports at any volume.

“The goal is right but the way of doing it is stupid and harmful to the entire business sector,” he said Sept. 14. “We have a large retail business in Israel. You are putting the entire retail business in unfair competition in favor of buying from abroad. This is very, very stupid.”

“We are not against internet buying. We are not against lowering import duties, but we are against creating a situation whereby the entire business sector in Israel is suffering and they have to face unfair competition. It’s not only the retail business. It’s also the local producers,” he said. “We have to completely cancel all customs. By canceling the customs, you have equal competition.”

Colgate-Palmolive, Unilever, Target, and Procter & Gamble didn’t respond to emailed requests for comment.

To contact the reporter on this story: Matthew Kalman in Jerusalem at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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