Finance Ministry Eyes New Taxes as AI Threatens Jobs and State Revenue | Israel Politics Post
Finance Ministry Eyes New Taxes as AI Threatens Jobs and State Revenue
With tech workers supplying over a third of Israel's tax income and AI adoption surging past the European average, officials are weighing a broader tax package rather than a dedicated AI levy.
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By Israel Politics Post Staff·Published
Illustrative image of a robotic hand interacting with digital tax symbols · Source: iStock by Getty Images, via The Times of Israel
Israel's Finance Ministry is exploring new taxes to offset state revenue it expects to lose as artificial intelligence displaces jobs, The Times of Israel reported, after an internal analysis warned that a shrinking share of GDP going to labor could translate directly into lower income-tax collection. "A decline in labor's share of GDP could lead to a reduction in state revenue collection from labor income taxes," the report, led by chief economist Dr. Samuel Abramzon, found.
The stakes are unusually high for Israel's treasury because tech workers already account for more than a third of the country's tax revenue. AI adoption among Israeli businesses jumped to 39 percent in 2026, up from 28 percent the year before, well ahead of the European Union's 20 percent average.
Rather than impose a dedicated tax on AI itself, which officials worry would dent Israel's competitiveness as a tech hub, the ministry is instead looking at a broader package targeting passive income: undeveloped land, capital gains, equity compensation and luxury goods, along with a value-added tax on imported digital services often nicknamed the "Netflix tax."
Tax attorney Doron Mutai argued the current system has a blind spot built in. "AI tools generate ongoing income to their owners, yet current tax law does not levy tax on the technology itself," he said, suggesting higher capital-gains taxation paired with lower labor taxes, which already reach 50 percent in Israel. The ministry's report stressed the need to preserve "a globally competitive business environment" to keep companies from shifting income, or operations, abroad.
