Property Tax – Complete Guide : Operation, Interpretation of the Proposed Law as Currently Published, and the Dark Sides it Conceals

(The version of the law referred to in this article can be downloaded here)

How the System is Built?

The proposed law describes an automated system that can determine the property value and the tax due, or the property owner (the taxpayer) may submit an assessment of the property value on their own initiative, with the choice being in the taxpayer's hands.

Please note – to avoid failing the reporting obligation: it remains the taxpayer's responsibility to log in and declare the value – only the method of calculating the value (system / self-assessment) is subject to their choice (expanded in the final paragraph). The system operates using a "Green Track" versus an "Independent Track" method:

Track A – System Assessment (The Green Track):

The taxpayer enters the online system and sees the value determined by the State.
If the taxpayer approves it – you pay the tax determined AS IS (a rate lower than 1.5% may be granted).

Track B – Self-Assessment (The Independent Track):

If the taxpayer believes the system value is too high (for example, due to a specific defect in the land unknown to the system), they are entitled to submit a self-assessment based on an appraiser's valuation.
In this case, tax will apply at the regular rate (1.5%).
The Risk: The Director is entitled to examine your assessment within a year, disqualify it, and issue a higher assessment – "Assessment to the Best of Judgment." If a significant discrepancy is discovered, you may also be exposed to a deficit penalty of either 15% (this penalty is imposed when the deficit—the gap between the tax paid and the tax truly due—is created due to the taxpayer's negligence but without criminal intent to evade tax) or 30% (the Director found that the taxpayer acted willfully, knowingly provided false details, or concealed relevant information to evade tax payment, for example, hiding the existence of a value-enhancing detailed plan).

In summary:

The goal is to make most landowners prefer "industrial quiet."

How will the system determine the assessment?

The Israel Tax Authority's computerized system (to be established under the proposed Section 17(c)) will base the land value evaluation on a statistical model and real-time market data. The system will weigh several parameters:

Geographical Location: Data from the Tax Authority's real estate database on similar transactions conducted in the property's vicinity (Betterment Tax/Purchase Tax data).

Planning Potential: The system will synchronize with planning institution data ("MBAT" system and similar) to know the approved building rights in the detailed plan applicable to the land.

Built-in Deductions: The system will automatically perform the deductions set by law (such as the 60,000 NIS per dunam deduction for agricultural land).

In the original Property Tax Law – the funds were kept in a Compensation Fund; currently, according to the proposed amendment to the law (Section 16(2) of the amendment, changing Section 7(b) of the original law), the funds arriving from taxpayers will be transferred to the State budget and not to the Compensation Fund.

Where will the Funds go?

1. Severing the Historical Connection

In the past, "Property Tax" and "Compensation Fund" were intertwined – the tax collected from property owners was used almost exclusively to finance compensation for war damage and drought (a sort of "mutual insurance" for property owners).

According to the amendment: The tax becomes a purely fiscal tax. That is, the money is intended to fill the general State treasury and reduce the deficit, for example.

2. Funding Sources of the Compensation Fund

Purchase Tax: 25% of Purchase Tax revenues will continue to be transferred to the Compensation Fund. This is currently the fund's primary and stable source.

3. Why was this done?

The government states in the explanatory notes to the bill that the Compensation Fund has accumulated significant surpluses over the years, while the State's budgetary needs for creating housing supply and reducing the deficit are more urgent. Therefore, it was decided that there is no need to direct the new tax receipts to the fund, and it will continue to rely on "Purchase Tax" alone.

Warning – The Reporting Obligation and the Dangers of Non-Declaration

1. Penalty for Delay in Submitting a Declaration

If January 31st (or 90 days from the date the law is published in 2026) has passed and no declaration was submitted:

A fixed administrative penalty will be imposed for every two weeks of delay.
The penalty accrues automatically without the need to prove intent.

2. "Assessment to the Best of Judgment" (The Director determines the value)

The Director is entitled to determine the land value according to "Best of Judgment":

Under-valuation is not an option: Usually, such an assessment will be on the high end of market price ranges.
Loss of Choice: Once the Director has issued an assessment because you did not declare, you lose the option to use the "Green Track" where the tax rate may be lower than 1.5%.

3. Interest and Linkage Differentials

The tax is considered a debt from the final date for declaration. For every day of non-payment, interest and linkage will be added according to the Adjudication of Interest and Linkage Law, which may increase the debt by tens of percent over time.

4. Deficit Penalty

If you did not declare – it may be considered a value declaration of 0. If the Director determined a value for the land higher than 0, the gap is 100% and the tax you paid based on a value of 0 (more accurately, not paid) is considered a deficit. Since the deficit is greater than 50%, the Director can impose a deficit penalty of 15% or 30%.

5. Prevention of Transactions (Land Registry Sanctions)

You will not be able to receive a Property Tax clearance certificate for the purpose of registering actions in the Land Registry (Tabu).
In the absence of a "No Debts" certificate, it is not possible to sell the land or register a mortgage on it. The transaction will be halted until all debts, penalties, and interest are settled (clearing the Land Registry record).

Recommendations:

To be on our mailing list and stay updated – do not reach a state of tax liability and non-declaration.
For landowners whose properties appear liable for property tax according to the above – consider preparing an assessment to get ready for payment.

Reminder – This is not the final approved version; there are many problems surfacing from the aforementioned wording – you can read about them in the following article.

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