Minister of Finance Bezalel Smotrich plans to raise dramatically the exemption from VAT on personal imports. At present, anyone who imports goods from overseas up to a value of $75 does not have to pay VAT on them. The rate of VAT is currently 18%. The ceiling for the purposes of the exemption will now be raised to $150, or even $200. Many Israelis take advantage of the exemption, but it represents tax discrimination against businesses that import the same goods and are liable for VAT, thus giving preference to foreign businesses over Israeli ones. Many countries, including the EU, the UK, and Australia, which used to give similar exemptions, have abolished them altogether.
In 2024, the aggregate value of parcels individually worth less than $75 that passed through Israeli customs was over $1 billion. Expanding the exemption will help many Israelis who bring in goods that currently exceed the ceiling, and enable them to order more from abroad.
The State Comptroller recently argued for raising the VAT exempt amount for personal imports. In a report released last month, the Comptroller states, "Personal imports have an impact on the domestic market and act as a restraint on prices, and thus encourage competition in which every citizen is a ‘small importer’ who contributes to bringing down the cost of living. It is recommended that the Ministry of Economy and Industry and the Ministry of Finance in collaboration with the Competition Authority should examine increasing the exemption from tax for products and sectors in which there is a market failure or abuse."
Discriminating between types of products, even in imports, is however an economically distorting step, which leads to the proposal currently under consideration, namely to increase the exemption from tax for all personal imports. That way, the supporters of the measure hope, it will be possible to create competitive pressure and bring down prices in the economy in general. This is of course in addition to the direct personal benefit enjoyed by consumers from cheap prices of goods ordered from overseas.
The Ministry of Finance Budgets Division put the other side of the case in its response to the State Comptroller’s recommendation. "Expanding the exemption from VAT on personal imports will deepen the harm to fair competition in the local market and create a substantial tax distortion. This is a subsidy (‘negative tax’) liable to lead in the long term to the weakening of entire sectors of the economy, loss of jobs, and harm to productivity and wages," the Budgets Division wrote.
The Budgets Division also notes that "many OECD countries have abolished the exemption." Unless the Budgets Division has done an about turn, it would appear that Smotrich is promoting the move against its recommendation.
The EU abolished its VAT exemption on personal imports in 2021, and the UK followed suit. In Australia, until 2018, the ceiling for the exemption was 1,000 Australian dollars, or about 650 US dollars. After the exemption was abolished, in order to save bureaucracy for its citizens, the Australian government imposed the obligation to pay the tax on the overseas seller.
Published by Globes, Israel business news - en.globes.co.il - on November 25, 2025.
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