Offenders face significant fines & those splitting payments can be jailed. Law also applies to checks.
Israel’s Law on Reducing the Use of Cash came into force in 2019 and next week, on August 1, the threshold for cash transactions is set to drop from NIS 11,000 to just NIS 6,000.
This amount refers to payments to businesses, including the self-employed and freelancers. Payments between private individuals (for example, when purchasing a property) have a higher cash threshold though that too is set to drop next week, from NIS 50,000 to NIS 15,000. The threshold for car purchases is the exception and will remain unchanged at NIS 50,000.
Around NIS 5 billion have already been collected in fines since the restrictions were voted into law. Tens of thousands of audit-raids on businesses have been conducted by the Tax Authority with thousands of violators penalized. In 2022 alone, around 6,000 audits have been conducted so far, with 2,189 law-breakers identified, representing a sum of NIS 35 million in illicit transactions.
According to Globes, Tax Authority figures show a gradual increase in compliance with the law, from around 84 percent in 2019 to 92 percent in 2021 and 95 percent in 2022.
The stated purpose of the law is to force the general public to use digital means of payment rather than cash, so that transactions can be easily monitored. The theory is that this will stifle black market activity, limit opportunities for tax evasion, and even make it harder for terrorists to operate (purchasing weapons, paying operatives etc.) Evidence exists that these objectives can be attained when smaller sums are concerned; however, those dealing with larger sums are more likely to identify opportunities to launder cash abroad, which has led to calls in countries such as Germany, which currently has no limits on cash transactions, to put such limits in place in order to stop the country from being a destination for those seeking to process their money.
In Israel there are few exceptions to the laws on cash transactions. One notable exception is that applied to gemachim, free-loan funds that are operated mostly by haredi Jews and lend out money without interest (in order to comply with halakhah, Jewish law, which forbids taking interest in most circumstances). Another exception applies to PA Arabs, although according to attorney Uri Goldman, this situation will be rectified by the end of 2022. Until then, only cash payments above the amount of NIS 50,000 made to PA Arabs must be reported to the authorities.
Goldman told Globes that, “The change to the law will mainly affect the self-employed and freelancers, such as renovators, plumbers, etc., for whom the difference between NIS 11,000 and NIS 6,000 will have a negative impact. The change will also have a detrimental effect on those renting or renting out property, as the threshold here will be dropping from NIS 50,000 to NIS 15,000. Individuals and businesses selling products such as electrical goods and furniture will also be greatly affected by the lowering of the ceiling.”
Violations of the law are punishable by significant fines, starting at 15 percent of the transaction if the cash payment was less than NIS 25,000 to a business, increasing to 20 percent where the transaction was between NIS 25,000 and NIS 50,000, and reaching 30 percent for larger transactions.
Between private individuals, the fines are lower, starting at NIS 10,000 for payments up to NIS 25,000, increasing to 15 percent for amounts up to NIS 50,000, and 25 percent for larger sums. As for people who are found to have been paid a salary in cash, they will be fined just five percent if the payment was above the NIS 6,000 ceiling but below NIS 8,500.
It is important to note that the penalties apply to payment by check and banker’s check, as well as by actual banknotes.
Furthermore, splitting payments is a criminal offense. “Splitting transactions is prohibited and is a criminal offense punishable by three years in prison,” attorney Goldman told Globes. Repeat offenders potentially also face jail sentences.
Unlike many other countries, the laws in Israel apply also to tourists. Goldman also noted that, “Responsibility for breaking the law rests on both parties to the transaction – the individual, the paying customer, and the business owner – but the sanctions imposed are different.”
A short period of grace will apply following August 1, but there are plans afoot to impose additional restrictions on cash in the future, with the Treasury and Tax Authority pushing for a law prohibiting any citizen from holding more than NIS 200,000 in cash in his home.