Reduce capital gains taxation

Especially now, reducing capital gains tax is a benefit that can help the Israeli economy grow.

First, the good news: Starting in 2026, trading on the Israeli stock exchange will take place from Monday to Friday, in line with global markets. This is a welcome and much-needed step that many believe will improve market liquidity, particularly among foreign investors.

Beyond the importance of foreign investors, there has been a significant increase in the number of private investors in Israel opening independent trading and investment accounts—a trend that began during the COVID-19 pandemic. 

The desire for financial independence, coupled with the sharp market declines at the start of the pandemic, drove many to deepen their knowledge in the field and seek additional profits. Over time, this trend has strengthened, transforming the stock market from an exclusive playground for Israel’s wealthy or monopoly-like figures (minus the top hat and monocle, of course—this is Israel, after all) into a more accessible space for students, salaried employees, and even your neighbor.

Israel’s population is growing, the number of investors is increasing, and, in general, people are investing more than ever before. So where is the money?

Real capital gains were subject to a 15% tax rate in 2003. Appetite grew, and by 2006, it was raised to 20%. In 2012, following the social justice protests, the tax was raised to 25%. A survey by the Bank of Israel found that as tax rates increase, they play a greater role in investment decisions, potentially leading the public to reduce investments and savings, shift funds to tax-exempt investment channels, or consider alternatives with lower tax rates, such as real estate.

Currently, the average capital gains tax across OECD countries stands at approximately 19.1%, with some countries offering tax incentives for investments in local stocks.

About a year ago, the Knesset’s Finance Committee introduced a proposal to reduce the capital gains tax to 20%, but it has yet to advance and remains stalled. The approval of this tax reduction would not significantly impact state revenues. The amount is minimal – approximately half a billion shekels per year.

Following the example of other OECD countries, especially given Israel’s current economic challenges, it would be wise to consider a tax incentive exclusively for Israeli companies. Such a measure would have a limited fiscal impact, while encouraging investment in local companies over foreign stocks, ultimately supporting economic growth.