This report presents an analysis of the contribution of tax payments made by high-tech employees and companies to the Israeli economy. The main findings arising from this analysis are detailed below:
1. State revenues stemming from the high-tech sector are increasing and the sector is responsible for about a quarter of the employees’ income tax and corporate tax payments in Israel.
High-tech activity in Israel makes a significant contribution to state revenues from taxation. The overall tax liability from individuals and companies in the sector totaled approximately 38 billion shekels in 2020 – a sum that constitutes about a quarter of the tax payments in the State of Israel stemming from companies and salary. Considering the growth in the number of high-tech jobs in recent years and the increase in the average salary in the sector, it can be assumed that the high-tech’s sector relative share of the pie of state revenues from taxation will continue to grow in the next tax years for which this data will be published (2021-2023).
2. The main increase in state revenues from Israeli high-tech comes from the sector’s employees.
85% of state revenues from high-tech stem from tax payments by the sector’s employees (that include income tax, and NII and health insurance payments). When looking at income tax payments in Israel, high-tech employees were responsible for more than a third of Israel’s income tax payments in 2021. This represents a higher ratio higher than their relative share of the number of jobs in Israel which stood at less than a tenth during the same period. The significant share of the employees’ payments out of the total tax payments collected in the high-tech sector means that an increase in the number of jobs and average salary contribute to an increase in state revenues related to the sector, and explains most of the growth in tax payments related to the sector in recent years.
3. An improvement in the representation of populations under-represented in high-tech will contribute to increased state revenues from taxation in the sector.
The tax payments in high-tech express the sector’s centralization in the Tel Aviv and Central Districts and its gender disparities. 80% of the taxes paid in high-tech stem come from the sector’s male employees, primarily (non-ultra-Orthodox) Jewish men. This finding stems primarily from a low representation in the high-tech sector of several population groups, including women, and employees from the Arab and ultra-Orthodox societies. The most common profile in high-tech in 2021 – in terms of population group, gender, and area of employment – is a (non-ultra-Orthodox) Jewish man from the Tel Aviv or Central District whose average salary was 32,00 shekels. The high tax payments in high-tech also reflect the salary disparities between the average salary in high-tech and the rest of the economy. As a result, the average tax payment of a high-tech employee is more than six-times higher the economy average. Increasing the participation and relative representation in the high-tech sector of the populations mentioned above therefore has significant potential for increasing state revenues from taxation, while narrowing salary disparities between genders and population groups, thereby reducing inequality throughout the economy. The means necessary to encourage this increased participation have been discussed at broad governmental forums in the past, among others by the Committee for Increasing Human Capital in High-Tech (the Perlmutter Committee).
4. The employees of the foreign high-tech companies in Israel make a significant contribution to state revenues.
In the past decade, there has been a significant increase in employment in the foreign high-tech companies in Israel. This increase has also led to an increase in collection of tax payments related to the foreign high-tech companies. Although the employees in the foreign high-tech companies constitute over a quarter of all employees in the high-tech sector, their income tax payments are more than a third of total high-tech income tax payments to the state.
5. The data infrastructures for formulating innovation policy in Israel is deficient.
This report presented two methodologies for analyzing the companies in the high-tech sector. It must be noted that the findings show that analyses according to the two methodologies generally show similar trends. In other words, formulating government policy, whether based on CBS data (surveys or administrative data) or based on other information sources as presented in this report (IVC/SNC) lead to similar conclusions. Nevertheless, it should be emphasized that the lack of updated administrative data means that it cannot be relied upon on an ongoing basis. Consequently, policy will usually be formulated based on CBS surveys and data from private data sources. These findings were also reflected in the report issued by the experts committee “For Improving the High-tech Data Infrastructure in Israel”, headed by Prof. Eugene Kandel in July 2023 which recommended to strive for the expanded gathering and use of administrative data, and to enhance its quality, while creating a system of administrative data on the high-tech sector.