Transactions in cash can be used to enhance tax evasion, money laundering, and various other offenses including the financing of terrorism, because it is anonymous, easy to conceal and can be moved from one person to another without being reported.
Consequently, as part of the increasing efforts of the Israeli government to combat money laundering, unreported transactions and economic crimes, the Knesset passed legislation on March 12, 2018, designated to limit the use of cash in transactions whether business or personal.
The new law imposes a limit on cash transactions, of NIS 11,000 (or up to 10% of the transaction, the lower of the two) between businesses, which could be further reduced by the finance minister to NIS 6,000 in 2020.
Cash transactions between private individuals (such as buying a used car), will be limited to NIS 50,000, a level that may be lowered to NIS 15,000 in 2020. Tourists will be limited to NIS 55,000 in cash to buy services or assets, although they can do so up to five times.
Violators will receive warnings until the law goes into full effect in 2019, the Israel Tax Authority (ITA) said, and the first nine months will be considered an adaption period and no sanctions will be implemented on first time offenders.
However, the free-loan societies (gemachim), widely used in the Haredi community, will be exempt from the law, in keeping with the demand of ultra-Orthodox lawmakers.
The law also includes specific restrictions on checks, mainly checks that are considered “open checks” (where the name of the payee is left blank) or partly endorsed checks.
In the explanation to the law it is stated that “the use of cash has been recognized in Israel and abroad as the "fuel" driving the black economy. "Black economy" or "shadow economy" is defined as a share of economic activity that does not appear in the GDP data. It includes activities and income outside the legal framework of the state, most of which are not reported to the authorities in order to avoid fulfilling the duties imposed on all citizens. The illegal activity associated with the black economy is diverse and includes tax evasion, criminal activity, money laundering, financing terrorism, and the like.
The black economy in Israel leads to a loss of tax revenues estimated at billions of shekels annually. It should be noted that the damage to Israel's economy and society from the existence of a black economy is not limited to the economic loss alone. A black economy undermines social cohesion and national strength and undermines the legitimacy of the rule of law and government. The phenomenon of the black economy is a barrier to free competition and economic growth, and causes a lack of equality in the burden of paying taxes, which, beyond the injustice inherent in it, places a heavier burden on law-abiding citizens.”
ITA director, Moshe Asher, noted that "the law to reduce the use of cash is a change in perception, because for the first time the citizens themselves also have a legal responsibility to carry out significant non-cash transactions, which will make it harder to conceal income from the treasury. I expect people to understand that by refusing to pay in cash, they are contributing to a healthy economy, and to combating the black capital, thus increasing the money that will be returned to them themselves”.
“As ordinary people stop for a red light even in the middle of the night when there’s no traffic, they will also come to realize that paying cash is something you don’t do any longer”, said a source at the ITA.
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