The expected increase stems from a six-year dispute between the credit card companies and the tax authority, which may now end in a compromise. In December 2016, the Tax Authority issued an assessment to the credit card companies that mainly deals with the payment of VAT for income from credit card transactions carried out abroad, as well as online purchases from websites.
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When a customer carries out such transactions, he pays a 2.5%-3% currency conversion fee for them. In addition to this, the credit card company receives income from the entity that cleared the transaction for the business. These incomes have until now been exempt from VAT for the reason that they are not carried out in Israel, But now the tax authority considers them as income from which 17% VAT must be collected, because it is made by an Israeli customer who receives service through an Israeli credit card company.
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According to estimates, this is a tax amounting to tens of millions of shekels per year for the VAT on the conversion fee. Already today, the use of a credit card abroad is considered expensive due to the currency conversion, and now it may become more expensive. Reports from the credit card companies indicate that The scope of revenues from transactions carried out abroad more than doubled in the first half of 2022 to the level of NIS 194 million, while in the whole of 2021 the scope of these revenues stood at NIS 260 million.
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