Regulation in Israel tends to be extensive and complex, making it difficult for companies to navigate the various laws and requirements. More often than not, efforts to decrease regulation in order to enable competition resulted in more expansive regulation instead, and many outdated regulations have not been tackled yet by the lawmaker, thus remaining obstacles for local companies. One example for such regulation is the customs tax. Historically, customs taxes were implemented in order to protect the local industry; however, as the market gradually became dependent on import in many categories and local manufacturers closed, customs taxes became redundant, simply impeding import and raising prices for the final consumer.
During the past few years, in an effort to lower the cost of living, the government has taken up the challenge to decrease customs taxes in various categories, through different methods. First was the raising of customs-free personal import: until 2012, consumers were required to pay customs taxes for purchases of $50 and up, and in 2012 this was raised to $75, allowing consumers to purchase a larger variety of products from international online retailers. Indeed, internet retailing increased at double-digit rates throughout the years following the raise.
Another step taken by the government was the allocation of customs-free quotas to importers who committed to offering a low maximum price for the final consumer. This was implemented in the cheese market, allowing many importers to compete with dominant local manufacturer Tnuva, and in the meat market too, the duopoly of Tnuva and Dabach was weakened with a great impact on prices.
During 2017, Minister of Finance Moshe Kahlon launched the "Netto Family" plan, in which customs taxes on various categories are gradually cancelled. For example, the customs tax on shoes – which was 12% - was cancelled, with the Ministry due to examine its effect after one year to ensure that the discount was actually passed on to the final consumer rather than companies raising their profit margin. Other basic products were also exempted from customs taxes, such as babies' pacifiers and optical glasses frames.
While consumers benefit from these steps, many local companies oppose them. Local manufacturers such as Tnuva are obviously damaged, but importers too protest against exemption from customs for personal import, while they are required to pay customs taxes for the same items. This is especially true in apparel; international online retailers are able to offer far more attractive prices as the products are exempted from taxes in purchases of up to $75, and local importers, burdened with the taxes, face unfair competition.
The government is still striving towards simplification of import, both in terms of costs and in terms of processes. Customs taxes will continue to be gradually cancelled during the next few years, as so far this has yielded positive results. In addition, the government is examining various ways to shorten import licensing processes, which are currently very long and tedious – especially in the beauty and personal care market, which is very sensitive due to Ministry of Health regulation. If indeed implemented, such as reform will have a great impact on the market.