The 2026 budget freezes income tax brackets, keeps VAT at 18%, taxes banks’ excess profits, eases dairy import tariffs, introduces a tax on e-cigarettes, and expands VAT exemptions.
The Israeli cabinet approved the 2026 state budget on 5 December 2025 after prolonged negotiations and internal disputes over allocations.
The key tax measures and policy changes are as follows:
Corporate and Banking Taxes
New measures will tax banks’ excess profits to curb monopolistic practices. Additionally, proposals aim to reduce certain taxes on bank activities while promoting greater competition within the sector.
Income Tax
Income tax brackets will remain frozen at last year’s levels, with no adjustments for inflation.
Value-Added Tax (VAT)
VAT remains at 18%, following last year’s increase from 17%.
Dairy Sector
The budget plans to ease tariffs on dairy imports to foster competition and reduce consumer prices, although local dairy producers have voiced concerns over potential impacts on the domestic industry.
E-Cigarettes Levies
A new tax of ILS 30 will be levied on e-cigarettes, representing the government’s first regulatory attempt in this sector.
Small Banks and Imports
Measures include expanding VAT exemptions on personal imports from USD 75 to USD 150 and easing market entry restrictions for small banks, aiming to stimulate competition and enhance consumer choice.
