Property Tax Status Review: Summary of Arguments Against and Requests for Amendments to the Proposed Law
Property tax is set to return in 2026 with extensive changes. As expected, the market, in all its components, seeks to correct past distortions and prevent future ones. Below are the primary arguments against the law in its current form (available for download here).
1. The "Sparse Construction" Problem and the Definition of Land (Appraisers and Developers)
The wording of the amendment is far broader, and this is one of the central focuses of criticism voiced by developers and industrialists. Here is the precise analysis according to the provided sources:
a. The Determining Test: "Detailed Construction Plan"
The law (in Section 1, Definitions) does not distinguish between types of designations (residential, employment, commercial, or industrial). The sole test for imposing the tax is whether a "detailed construction plan" exists for the land and how much of the permitted building areas under it have been utilized.
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If there is a plan allowing for the issuance of a building permit—regardless of whether it is for a residential tower or a logistics center (Logistics Hub)—the land enters the tax base.
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As long as the existing building on it is smaller than 30% (or 10% under the temporary provision) of the permitted area according to that plan, the property will be considered "land," and the owner will pay 1.5% of the value of all rights.
b. Impact on Industrial and Commercial Sectors As reflected in the criticism in "Globes" and the analysis of the memorandum, the problem is more severe specifically in these sectors:
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Nature of Construction: In industry and commerce, it is common to have "low-rise construction" (warehouses, garages, workshops) on large plots of land. Thus, the area was built in the past for a garage use that does not require 10 floors.
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Planning Gap: In many City Building Plans (TBP), high building percentages (e.g., high-rise construction) are approved to encourage future densification. A garage owner operating in a small, single-story building on land that theoretically allows for a 10-story office building will find themselves paying property tax on the value of the "air" (office building rights), despite having an active and legal business on-site. The argument for taxing vacant land is to create tax continuity—if there is no economic enterprise that can be taxed because there is no built-up area (Arnona, income tax for employees, etc.), there will be taxation on holding the area as vacant.
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In practice, in industry and commerce, there is economic activity that is taxed; therefore, there is no justification for "tax continuity" to impose double taxation as if the land were vacant.
c. Agriculture – An Extreme Case Agricultural land is also included in the law, but the legislator created a slightly softened mechanism (Section 12a):
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Land designated for agriculture receives a deduction of 60,000 NIS per dunam. This is the average value per dunam produced by agriculture—thus, this value is already taxed as agricultural income. On the remaining value—stemming from location or future potential—regular property tax will apply.
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The issue is that in Israel, future potential is first and foremost completely uncertain, and secondly, it can take years (land rezoning processes take about 10 years). Only when a detailed plan is approved will it be discovered if the land is for road use (at a very low value) or a residential tower (at a very high value). The question arises—how do you tax such vague potential?
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Given the lack of certainty for the approval of a detailed plan, assume that after several years of the landowner being taxed, the plan is eventually canceled. The potential that raised the land value has vanished—the question is: will the taxes be returned to the landowner?
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As long as "Validation" (Matan Tokef) of the plan has not been published, the land is considered agricultural. However, once the designation changes from agriculture to something else (residential or employment), the 60,000 NIS deduction disappears, and the tax is paid according to the full and new value, even if construction hasn't begun.
d. Why is the claim that the tax is only for residential common (yet incorrect)?
The confusion stems from the explanatory notes (p. 12 of the memorandum), where the government repeatedly emphasizes "increasing the housing supply" as the central goal for returning the tax. This is the public justification—combating "land speculators" who sit on residential plots and do not build. However, in practice, the law's operative language does not include an exemption for commerce or industry.
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The bottom line: The law applies to any land with an approved plan, regardless of use (except for specific exceptions like public institutions or land unavailable for construction for objective reasons). This is a "tax on potential" that harms anyone holding a property that is not fully utilized according to the latest plan.
2. Distortion in Agricultural Land (Settlement Movements and Farmers)
The claim:
The 60,000 NIS per dunam deduction is a mockery and does not reflect the real value of agricultural land in the periphery vs. the center. Some lands are worth more, and some are worth much less.
Explanation
: In agricultural lands in central Israel, the value can reach millions due to the potential for rezoning. A tax of 1.5% on such a value (even after deduction) is much higher than the annual profit that can be generated from agriculture, which will force farmers to sell land to real estate developers.
Furthermore, imposing a tax based on potential misses the mark—the test for tax liability compares actual construction against an approved TBP; why tax based on value derived from an unapproved TBP (Town Building Plan, known as "TABA")?
In agricultural land, there are few building rights to begin with—the plan that allegedly creates tax liability does not exist at the time of the charge, and it is likely that when it is approved, the land will be sold at the new TBP value to a developer who will pay for and benefit from these rights. The farmer will pay Betterment Tax (Mas Shevach) on the value increase and a Betterment Levy (Heitel Hashbacha); therefore, it will be double taxation to charge for potential.
3. Loss of Link to the Compensation Fund (The Public and Financial Media)
The claim:
During wartime, the state uses the name "Property Tax" (perceived as insurance against war damage) to collect a new tax but takes no less than 100% of the money for the general budget.
Explanation:
An article in Globes emphasizes that this is a fundamental change in the order of things: the tax is no longer intended to compensate victims but is used to close the government deficit, which is a "bottomless pit." The taxpayer pays for "protection" they will not receive.
4. The Burden on "Involuntary Heirs" (Legal Professionals and the General Public)
The claim:
Family and real estate lawyers agrue that the tax harms vulnerable populations who inherited land and lack the financial liquidity to pay the annual tax.
Explanation:
Examples are presented of people who inherited parts of land in "musha" (multiple owners), who cannot easily sell their share and simultaneously cannot build on it, yet will now have to pay tens of thousands of shekels a year "out of pocket."
Alon Schuster further argued that this taxation should be removed from the agenda as it arises at a time when people have no money (war). Real estate is not a liquid asset like stocks that can be sold to pay the tax. According to him: "Whoever wants to collect money should do so when there is money, through Betterment Tax, Purchase Tax, etc.", meaning when the market is functioning—and not specifically when the real estate market is facing difficulties from COVID-19, the rise in interest rates for mortgages and project financing, and consumer power is weak due to war results (closed businesses, etc.).
5. The Problem of Computerized Assessment and Deficit Penalties (Bar Association and Representatives)
The claim:
The Tax Forum of the Bar Association and representatives claims that the Tax Authority's computerized system will generate excessively high assessments, and the incentive to use them (immunity from fines) is "extortion under threat."
Explanation:
It is argued that a taxpayer wishing to submit a true (lower) assessment will be afraid to do so due to the threat of a 15%-30% deficit penalty. The state is essentially saying: "Accept my price, or I will fine you if you are wrong in your assessment."
6. Rolling the Tax onto Tenants and the Final Consumer (Economists)
The claim:
The tax will not remain with the landowners but will be rolled forward, increasing the cost of living. Just as limiting attorney fees for project purchasers rolled into the apartment cost, this tax—which raises the developer's expenses—will be embodied in the price of the apartment built on that land.
Explanation:
If it is land intended for warehouses or logistics, the landowner will raise the rent for the entrepreneur, and the entrepreneur will raise product prices for the consumer. This tax behaves like an indirect "consumption tax."
Banks will collect the same fees for setting up a project and will demand the same final profit percentage; construction costs have spiked due to the war, and effectively the land component cost will also rise. All these will add to the cost of housing in the country.
7. Ambiguity regarding the realization of "Building Rights"
The claim:
The Israel Builders Association (Developers) are claiming that the tax is imposed on "potential" that has not yet been realized and is sometimes not immediately realizable.
Explanation:
A developer may hold land with an approved plan, but the city engineering department does not grant building permits due to a lack of infrastructure (sewage, roads). In such a situation, the developer pays property tax on rights they physically cannot utilize for an unknown period. This fact raises the risk component (an unknown variable with high cost) and ultimately harms project feasibility. In the absence of feasibility, developers will not begin construction.
The proposed tax is very broad, and the bill does not distinguish between land already purchased and held land that was priced at the time and for which financing has already been taken. A developer in such a situation must reopen the agreement with the bank and take on additional debt.
In summary,
It seems this is not the law's final incarnation. Since the current version places all responsibility on landowners—your minimal duty is to be updated and prepared in advance. The deposit of a plan (Section 89) is your warning sign of a value increase due to expectations—meaning potential.
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