In blow to online shoppers, Knesset lowers tax exemption limit

Knesset votes to nix reform that granted shoppers tax exemption for online purchases up to $130, lowering the exemption to $75.

By World Israel News Staff

The Knesset voted Tuesday to revoke Finance Minister Bezalel Smotrich’s order expanding Israel’s tax exemption on personal imports, reversing a measure he had promoted as a way to lower the cost of living but that critics said would hurt local retailers and manufacturers.

Lawmakers voted 59-23 to cancel the order, which had raised the value-added tax exemption threshold on personal imports from $75 to $130. The vote restores the previous $75 limit for tax-free overseas purchases.

Smotrich sharply criticized lawmakers who opposed the measure, saying they had acted against consumers.

“Everyone who voted this evening against increasing the VAT exemption on ordering products from abroad hurt the pockets of Israeli citizens,” Smotrich wrote Monday night on X.

“Tonight it was proven again that there is only one party in the Israeli right that cares for the citizens of Israel and fights the cost of living — Religious Zionism,” he wrote. “All the other parties are economic leftists who prefer petty politics and primary considerations over the good of Israel’s citizens.”

The vote was a political setback for Smotrich and exposed renewed coalition divisions over economic policy ahead of elections expected later this year.

Several Likud lawmakers, including Finance Committee Chairman Hanoch Milwidsky, Economy Minister Nir Barkat and MK Eli Dalal, had opposed the move, arguing that it would benefit foreign e-commerce giants at the expense of Israeli businesses.

Milwidsky said the measure would cost the Israeli economy more than NIS 1 billion, or about $354 million.

“The cost of this absurd order is more than NIS 1 billion to the Israeli economy,” Milwidsky said.

He said the order “encourages nothing but excessive and unnecessary consumption” and accused Smotrich of using it to distract from “the finance minister’s failure to address anything related to the cost of living.”

The dispute has been building for months. In February, the Knesset voted 59-25 to revoke an earlier Smotrich order that would have raised the personal import exemption to $150.

Hours later, Smotrich signed a new order setting the threshold at $130 instead.

That move also drew criticism from across the political spectrum and from business owners, who warned that the higher exemption would push more consumers to buy from overseas platforms such as Amazon, AliExpress and Shein, while small Israeli retailers continued to face full domestic tax and regulatory costs.

Smotrich has argued that lowering taxes on personal imports would increase competition and pressure Israeli sellers to cut prices.

During the earlier fight over the $150 threshold, he told the Knesset that the public should “follow who is voting for you and who is voting against you.”

“If, heaven forbid, the order is canceled in the plenum, I will sign a new decree, because I am determined to fight the high cost of living,” he said at the time.

After the government backed the earlier order, Smotrich said the move showed that “things can be cheaper here.”

“The goal is clear: to turn every citizen into an importer and expand competition in the market,” he said. “It can be cheaper here, and we are proving it.”

Opponents said the policy would not solve Israel’s cost-of-living crisis and would instead create an uneven playing field.

During the February debate, Milwidsky called the proposal “a slap in the face to businesses,” while one business owner told lawmakers that the government would be “issuing a death sentence for many business owners” if the order stood.

The Finance Ministry had previously said the exemption increase was intended to expand cross-border e-commerce, strengthen consumer purchasing power and narrow price gaps between Israel and Europe.

Under Israel’s restored rules, goods imported for personal use with a value of up to $75 are exempt from taxes, with exceptions including tobacco and alcohol. Purchases above that amount may be subject to VAT and other applicable import charges.