When considering Israeli tax rates and how to finance the war, don’t forget fines and penalties. These are levied very efficiently by computers. Below, I review an instruction of February 3 from the Israeli Tax Authority on how fines may be reduced or eliminated (Procedure For Delegation of Authority To Give Relief For Purposes of Income Tax, Withholding Tax, Real Estate Taxes, Law for Reducing Use of Cash).
Spoiler: it isn’t easy, prevention is better than cure.
Level of fines
First, what fines are there? Many.
Here are just a few 2024 figures (ITO secs 188-195B).
Non-filing or delay filing a tax return – NIS 500 per month; failure to file an online return – NIS 560 “financial sanction”; non-reporting reportable act – NIS 600 per month; delay filing a withholding tax return – NIS 380 per month; failure to withhold tax – NIS 190 per month and 15% surtax; non-filing capital declaration – NIS 380-750 per month; delay paying advance installments – consumer price index rise plus 4% per year; deficiency fine following under-reporting – 15%-30% surtax; failure to keep adequate books – 10%-20% surtax (and probably a thorough tax audit); incomplete recording – the higher of 5% of revenues of NIS 500 per month.
Various rules and conditions apply.
Those are income tax fines. There is also a battery of fines for infringements regarding capital gains tax, land appreciation tax, VAT, etc.
Interest is payable based on the CPI plus 4% per year if tax is paid after the date interest starts running – usually the following January 1 – even if you don’t yet know the tax liability!
For example, if you paid 2024 income tax on April 30, 2025, interest runs from January 1-April 30, 2025. But interest starts running earlier if the ITA asked you to pay monthly installments in 2024 but you didn’t.
How to reduce fines?
Compliance helps. Also, the income tax director has powers to reduce interest, CPI indexation, and fines, or to waive them completely if it is proved to their satisfaction that the delay is not due to a willful act or failure to act by the taxpayer (ITO Sec. 192).
In practice, the tax director has delegated the power to reduce or waive fines to a hierarchy of tax officials – assessing officer and their deputy; and chief tax collector and their deputy. Various rules and monetary limits apply.
The instruction says the power to give relief from fines must be used properly and sparingly (Para 1b.).
A taxpayer’s request for fines’ relief should be submitted in writing to the relevant tax office. Reasons should be given with supporting documentation.
Submitting a request for relief does not delay or cancel collection or enforcement proceedings.
Any relief may only be granted after all taxes due are settled (in our experience, this can include a payment arrangement over time).
When is fines relief possible?
The relevant officials are given discretion after weighing up the circumstances of the taxpayer. This means checking information regarding the “debtor”: ability to pay, assets, tax debts in the various tax systems, past infringements, past relief granted, past payment arrangements, dishonored payments, cancellation or reduction of tax installments, and payment of salary to directors of the company/charity.
Examples in the instruction include: Disability or sickness of the taxpayer or supported family member; tragic events e.g., hostilities; extended IDF service; bankruptcy; past record of tax reporting and payment; good faith error proven to the satisfaction of the tax official (comment: to reduce the fine, not the tax).If relief is requested high up, at the level of the ITA Directorate, no decision will be made without consulting the relevant local tax office.
Any recommendation of a tax office not within its authority will be passed to a committee at the Directorate, supported by an opinion of the head of the tax office.
When a decision emerges, it should be sent to the taxpayer, but not the internal documentation of the ITA.
If criminal proceedings are pending, consideration of any fines relief is delayed until after the proceedings are over. If civil proceedings are pending, fines relief may be granted by the ITA Directorate only in conjunction with the ITA legal team.
If there is a legal or professional dispute, the relevant officials may consider relief after consulting the relevant legal or professional “reference” official.
Interest relief
What about relief from interest and indexation on tax paid late? The circular says this is possible only in special circumstances. Examples in the instruction include: disability of the taxpayer or supported family member, tragic events e.g., hostilities, extended IDF service, or bankruptcy.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
leon@hcat.co
The writer is a certified public accountant at Harris Consulting & Tax Ltd.