Finance Ministry Considers Reinstating Taxes on Disposable Items and Sweet Drinks

The growing budget deficit due to the Gaza war, alongside increasingly fixed operational costs, is prompting the Israel Tax Authority and senior economic officials to devise far-reaching measures to boost state revenue, reports journalist Gad Lior on *Ynet*.

According to a senior government source, the Tax Authority is “fully mobilized” to identify new income sources. The plan includes imposing new taxes, eliminating VAT and indirect tax exemptions, and intensifying field enforcement against tax evaders. These measures are being prepared for the 2026 state budget, set for government approval in about five months, and are expected to significantly increase household tax burdens starting next year.

Key Exemptions Under Review:

- Eilat’s VAT Exemption: Scrapping this could harm the southern city’s local economy.

- VAT Exemption on Fruits and Vegetables: This would directly raise food costs for every Israeli household.

- Tourism Services Exemption: This could further strain an industry already in crisis since the war began.

Reinstating Taxes on Sugary Drinks and Disposable Items

The Finance Ministry is considering reinstating taxes on sugary drinks and disposable items, previously removed at the initiative of Finance Minister Bezalel Smotrich. Officials estimate this could generate 1.5 billion ILS annually.

Fewer Recovery Days?

Alongside Tax Authority measures, the Budget Division is discussing additional cuts to wage budgets. One proposal is reducing an extra recovery day for all workers, as done in 2024 and 2025. The value of a recovery day (418–485 ILS) is also expected to remain frozen. The Histadrut plans to fiercely oppose this, but the Finance Ministry anticipates a compromise.

The Bottom Line

Unless the security situation or deficit improves dramatically, early 2026 will likely bring economic measures hitting most Israelis’ wallets. The Finance Ministry sees these as unavoidable, but the public, especially weaker socioeconomic groups, will feel the impact immediately.

Lior reports additional proposed sanctions, such as taxing rental income and ending import tax exemptions.

Rental Income Taxation

The Tax Authority has intensified enforcement against tax-evading landlords through cross-referencing and investigations. Israel has about 400,000 rental properties owned by individuals with multiple properties. Currently, landlords are exempt from tax on rental income up to 5,654 ILS monthly. The Authority has identified fraudulent contracts underreporting rent to meet this threshold. Investigations are expected to yield hundreds of millions in revenue, but the main proposal for January 2026 is to eliminate the exemption ceiling and tax rental income from the first shekel. A senior official told *Mamon* (*Yedioth Ahronoth*) that budget constraints may secure political approval for this previously rejected measure.

Ending $75 Import Exemption

Another proposed measure, likely to anger many Israelis, is eliminating the VAT exemption on personal imports up to $75. Finance officials support this to generate hundreds of millions annually and level the playing field for local businesses against foreign imports.

The Public Will Pay

With the deepening deficit and no diplomatic solution in sight, rising taxation seems inevitable. Middle-class citizens, in particular, will bear the cost, literally, starting next year.