Representatives of the major technology firms in Israel refused to comment publicly on the decision announced July 14 by Finance Minister Moshe Kahlon to slash their tax rate to 6% from the normal corporate tax rate of 25%. Sources associated with Facebook and Google in Israel told Al-Monitor on condition of anonymity that they had been closely monitoring the decision and saw it as a positive move, but until such time as it becomes officially anchored in law, “it would not be responsible on our part to react.”

Kahlon’s decision suggests that the Finance Ministry understands that Israel must act quickly to resolve the issue of taxation on large and medium-sized tech companies to incentivize them to continue their operations in Israel.

For Kahlon, the government’s standard bearer on social issues, this is no easy decision. It risks being perceived as capitulation to powerful business interests. On the other hand, encouraging the companies to stay in the country will enable significant growth of state tax revenues that could be invested into bridging social gaps and spent on health and education, meeting the demands of the nationwide social protest that erupted in the summer of 2011. 

Finance Ministry officials told Al-Monitor that when he took office in May 2015, the ministry’s director general at the time, Yael Andorn, suggested he adopt an attractive taxation package for the giant tech firms operating in Israel, but he feared a public backlash.