Graphs & Data

·         In the estimation of the Bank of Israel, revenue from Value Added Tax on new homes was NIS 7.6 billion in 2015—nearly one-third higher than in 2014. Direct-tax revenue from real estate transactions grew by more than one-third in 2015, to NIS 10.6 billion.
·         According to the estimate, the combined revenue from Value Added Tax on new homes and direct real estate taxes accounted for 30 percent of the total increase in tax revenue in 2015—five times as great as the share of these taxes in revenues in 2014.
·         Collection of these two components of tax in 2015 was half a percentage point of GDP greater than in the second half of the previous decade, when the surge in the real-estate market began. At that time, these real-estate taxes accounted for around 4 percent of total tax collection; according to the current estimate, this share climbed to 6.7 percent of total collection in 2015.
The Bank of Israel Annual Report for 2015 examines government revenues and finds that revenues from taxes deriving from the vigorous activity in Israel’s real estate market in 2015 made a major contribution to the total increase in tax revenue in the past year, and that those revenues were markedly higher than they were in the second half of the previous decade, when the surge in the housing market began.
The Report looks at two important components of taxes on the real-estate industry. First, collection of direct real-estate taxes (real-estate purchase tax and betterment tax) increased by 36 percent in 2015, to NIS 10.6 billion.[1] Second, according to the estimate, collection of Value Added Tax (VAT) on new homes in 2015 was NIS 7.6 billion—28 percent greater than in 2014. The combined share of these two components in total tax revenues was 5.4 percent in 2014, but their contribution to the increase in total collection in 2015 was five times as great: 28 percent of the total growth in revenues (Table 1).
Table 1
Revenues from total taxes and real-estate taxes, 2014 and 2015
in 2014
in 2015
in revenue
Contribution to
increase in revenues
NIS billion
Total tax revenues
  Of which:
     Direct real-estate taxes
     Estimated VAT on new homes
The VAT revenues on new homes were estimated on the basis of data on total transactions in such homes, with some consideration given for the gaps in time between the purchase of a home and the dates of actual payments, on which the tax is collected.[2] The large number of new-home sales in the past two years will contribute to VAT revenues in the next two years as well, due to the spreading of payments for these homes.[3]
The total value of new-home transactions in 2015 was estimated to be NIS 64 billion—an increase of 60 percent from 2014, tracing to a steep (56 percent) increase in the number of transactions and a 2 percent increase in average transaction price. The rise in the number of transactions was strongly impacted by the end of the period during which potential buyers waited for the “Zero VAT” plan, which ultimately was not implemented, and by investors who rushed to buy dwellings before an increase in real-estate purchase tax, in the middle of the year.
The cumulative increase in the number of transactions and in home prices boosted revenues from the two aforementioned tax components from around 1.1 percent of GDP in the middle of the previous decade, when the current surge in the housing market began, to a high of 1.6 percent of GDP in 2015 (Figure 1). The difference is equal to an increase of NIS 6 billion in tax revenues in 2015. The estimated tax revenue from these two types (VAT on new homes and direct taxes on real estate) was 6.7 percent of total tax revenues in 2015 in contrast to 4 percent in the middle of the previous decade.
The Bank of Israel notes that in addition to the estimate that appears in the Annual Report, the brisk housing market may help to boost state revenues in additional ways that the Bank cannot currently estimate directly. They include:

a.         Revenue from income tax on the wages of persons employed in the construction industry[1] Remittances of income tax on wages in this industry in 2015 are estimated at NIS 3 billion[2] (about 0.25 percent of GDP) and account for nearly 6 percent of total collection of this tax (from employees and managers), as against 4 percent in the middle of the previous decade.
b.         Revenue from corporate tax on the profits of firms that operate in this industry—construction-industry product in 2015 was NIS 55 billion[3], which was 7.6 percent of total business-sector product, as against 6 percent in the middle of the previous decade.[4] The increase in this proportion may imply an upturn, as well, in the share of the industry in collection of corporate tax on earnings. However, we do not have data with which to estimate these revenues.
c.         Revenue from VAT on construction inputs and services for new homes not for sale.[5]
d.         In addition, the boom in the housing market contributes to tax revenues from industries that provide services or raw materials to the construction industry, and also contributes to local municipalities’ revenues (that collect betterment levies).

[1] NIS 3 billion of these revenues was transferred in 2015 to a fund that pays compensation for damages originating in enemy action and war operations; therefore, it is not recorded as revenue according to the state budget definitions. Half of this sum is an advance on account of the transfer in 2016. The change in revenues was examined here in accordance with actual revenues on the basis of the Israel Tax Authority definitions.
[2] Collection of VAT on new homes was estimated according to the value of transactions executed each year and reported to the authorities (data from the State Revenues Administration and the Israel Tax Authority’s CARMEN database of real-estate transactions). To estimate payments that were actually made each year, we used data from the Central Bureau of Statistics on the amount of time that new homes sold each year remained in the market of new homes (average for 2012–15) and assumed that payments for a dwelling are spread over the years in a linear manner from the time the dwelling is sold to the completion of its construction—three years after it is placed on the market of new homes. In other words, the payments for a home sold during its first year on the market are spread over three years, while for a home sold in the third year of its going on the market, the full payment is received that year.
[3] According to the estimate, this revenue is assessed at NIS 4 billion in 2016 and NIS 2 billion in 2017.
[4] The construction industry (section F in the CBS classification) includes firms that engage in construction of buildings for residential and nonresidential use, civil engineering works, and special construction works. The Bank does not have data on the residential construction market only.
[5] To perform the calculation, we applied the average tax rate on employees in the construction industry—14.4 percent—to total wage payments in this industry (NIS 21.8 billion in 2015). The average tax rate is derived from a tax simulation performed on data from the CBS Household Income Survey in 2014.
[6] In base prices, i.e., net of taxes on products in this industry.
[7] For further details on the share of the construction industry in GDP and employment, see A. Barak (2016), “The Construction Industry and Its Contribution to Growth,” Recent Economic Developments 140, Bank of Israel.
[8] Homes not for sale include those built for landowners’ use, “Build-your-home” housing (Bnei Beitcha), purchase groups, lease dwellings, the elderly population, hostels, and institutional residences. The CBS data on these homes include an estimate of illegal construction.