Israel Eyes Becoming a Cashless Society

Monday, May 26, 2014 |  Yossi Aloni

A special committee headed by Prime Minister Benjamin Netanyahu’s chief of staff, Harel Locker, has recommended a three-phase plan to all but do away with cash transactions in Israel.

The motivation for examining a cash-less economy is combatting money laundering and other tax-evasion tactics, thereby maximizing potential tax collection and greatly expanding the tax base. This is important considering the enormous strain put on Israel’s national budget by the army, healthcare system and other public services.

The committee estimated that the black market represents over 20 percent of Israel’s GDP, and cash is the facilitating factor. Cash enables tax evasion, money laundering and even financing terrorism.

“According to estimates by the Tax Authority, about one-fifth of economic activity in Israel is not reported, ie. it is a black market,” said Locker. “As a result of this black market, Israel loses tax revenues in the neighborhood of 40–50 billion shekels ($11-$14 billion) annually. This is an amount equal to the individual annual budgets of the Ministry of Defense, the Ministry of Health and the Ministry of Education.”

What the committee would like to see happen, pending government approval, is greater restriction on the use of cash, limiting the use of checks as a means of payment and exchange for cash, and promotion of the use of electronic (and therefore verifiable) means of payment.

The following guidelines were set out by the committee for the short-term:

  • Limit business transactions done in cash or by check to NIS 7,500 ($2,150) immediately, and reduce that further to NIS 5,000 ($1,433) one year from the date of legislation;
  • Limit private transactions done in cash or by check to NIS 15,000 ($4,300);
  • Any violation of these limits would be a criminal offense warranting a stiff fine.

In conjunction with these new restrictions, Israeli banks would be required to provide all account holders with debit cards to further promote electronic payments.

The committee found that Israelis are already prone to choose electronic payments methods, and so hopes the shift to a cashless society would be a good fit for the Israeli economy.

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