On Friday afternoon, the inter-ministerial committee examining the imposition of a special tax on the banks published its final report. Besides the plan itself, what stands out in the report is the opposition of the Bank of Israel and of the Budgets Division within the Ministry of Finance.
The team finds that there is justification for imposing a tax on the super-profits of the banks, but leaves the decision to the politicians. “If the political echelon decides to impose such a tax, the right model is a differential tax on excess profits,” the report states.
After the inter-ministerial team received comments from the public on the draft report, it held a hearing with representatives of the Association of Banks in Israel and examined the case presented by the Association in writing and orally.
“The sharp rise in the interest rate environment led to extraordinary results for the banks in recent years,” the team states in its report. “The effect of the change in the interest rate environment was redoubled by the special structural characteristics of the banking system in Israel, which include a limited and concentrated competitive environment, low business risk, high barriers to entry, and a favorable regulatory environment.”
The team examined various possibilities for taxation, and recommends that, if a tax is imposed at all, a differential profits tax should be adopted on profits 50% higher than average profits in the period of low interest rates between 2018 and 2022 (linked to GDP) in a temporary provision for a number of years.
“This alternative,” the report states, “expresses the justifications that the team found for taxation in the best possible way, and at the same time deals with the challenges and complexities of taxation of this kind, reducing as much as possible the potential effects and maximizing the benefits.”
Controversial conclusions
The Bank of Israel expressed downright opposition. Dr. Yossi Saadon of the Bank of Israel Research Department, who participated in the team, states, “In the light of the direction that has been formulated in the final report, which in my view did not reflect the consensus in the team’s discussions or the positions of the participants, I see fit to present a minority opinion.
“The opposition is to the imposition of a sectoral tax on the banking system, and certainly to a permanent tax. Sectoral taxation is not consistent with the basic principles of the tax system and is liable to create distortions in the economy, to harm certainty in the business environment, and to deter additional players from entering the banking system, completely contrary to the declared aim of boosting competition,” Saadon writes.
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Saadon adds that if it is nevertheless decided to impose taxation in accordance with the model proposed by the report, it should not be imposed before January 2027, and it must be clearly defined in advance as temporary taxation for 2027 only.
The Association of Banks stated that the publication of the conclusion so the team examining a special tax on the banks pulled the rug from under the minister of finance’s feet. “The team did not manage to support the announcements of the minister of finance that he would impose a special tax on the banks in Israel. The team, which was appointed by the minister of finance, does not recommend imposing an additional tax on the banks, but explains that there are consequences and justifications either way, and therefore passes the decision to the political echelon.
“Not only does the team not reach an unambivalent recommendation that there is room to impose a tax on the banks, but the two most important professional economic bodies that were members of it – the Budgets Division and the Bank of Israel – categorically oppose the imposition of an additional tax on the banks. If the initiative to impose an additional tax on the banks is advanced, this will be a decision that harms the public, not just as indicated by the Association of Banks but also in the view of the professional team.”
Published by Globes, Israel business news – en.globes.co.il – on December 21, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
