Tourism fight heats up as Smotrich pushes to end VAT exemption

While the Finance Ministry expects billions in revenue, experts say the estimate is inflated.

By Batya Jerenberg, World Israel News

Finance Minister Bezalel Smotrich has received strong pushback to a recent proposal to cancel the VAT exemption for tourists, with top industry figures warning that such a move would backfire on the country, Ynet reported Tuesday.

Smotrich wants visitors to pay the extra 18% that locals must on such things as hotel rooms, car rentals and other specific goods and services in order to enrich government coffers.

He said that in exchange for removing this benefit, the government would present a broad plan to develop the tourism industry throughout the country.

The report said that the Finance Ministry has calculated that such VAT payments would add up to NIS 2.5 billion per year.

By contrast, tourism experts say that the potential gain would be less than a third of that — NIS 750 million.

This number is based on the fact that tourism to Israel has plummeted over the past several years due to the COVID-19 pandemic travel restriction that was followed so closely by the two-year war against Hamas, Hezbollah and Iran, which only conditionally ended last month.

While 2019 saw a record 4.5 million entries into Israel, barely 1.2 million came in total during the COVID years (2020-21).

The numbers rose during 2022 and 2023 to over 3 million, but with the War of Revival breaking out in October 2023, tourists again disappeared, with fewer than 1 million coming in 2024.

Government figures earlier this month projected only 1.4 million tourist entries for 2025.

These numbers show that it takes time for visitor confidence to rise, and the industry believes that canceling the VAT exemption will just discourage future tourists who might want to come to help Israel recover after the war.

Yossi Fattal, head of the Inbound Tourism Organizers’ Bureau, attacked the idea, telling PassportNews Wednesday that the Finance Ministry was basing its proposal on “economic works from 2008 and 2011,” which were both “irrelevant” and “misleading.”

In 25 out of 27 EU countries, he added, tourists receive either a total tax exemption or a reduction.

“The Ministry of Finance is managing the tourism sector with the intention of deliberately destroying it, in complete contradiction to the policy and a series of decisions made by Israeli governments according to which the incoming tourism sector carries important strategic value for the State of Israel,” he charged.

When contacted, Tourism Minister Haim Katz had a four-word reaction: “It will not happen.”

Similar initiatives were shot down in 2009 and 2013 due to pressure from the tourism industry.