High-tech has long been touted as the driving force behind Israel’s economy, but new data from the Innovation Authority underscores just how crucial the sector is. In 2021, high-tech workers and companies contributed 36% of the nation’s income tax, with revenues likely surging even further in recent years.
In a report titled “High-Tech Sector's Contribution to State Revenues from Individuals and Companies," the Innovation Authority and the Chief Economist Division of the Ministry of Finance reveal that in 2020, about a quarter of all tax payments in Israel from companies and wages came from high-tech.
Furthermore, in 2021, employees in the high-tech industry were responsible for approximately 36% of income tax payments. At a time when budget cuts are affecting almost every industry, the Innovation Authority aims to demonstrate that harming high-tech workers directly impacts one of the most significant sources of state revenue.
Most of the income from the high-tech industry is linked to employees, with 85% of this revenue coming from taxes on wages, including income tax, national insurance and health insurance. Only 15% comes from corporate tax. Over a period of six years, nearly 100 billion shekels were collected from the income tax payments of high-tech workers, which make up a third of the income tax revenue during this period.
Dror Bin, CEO of the Israel Innovation Authority, said: "This publication emphasizes the strategic importance of the high-tech sector to the Israeli economy and state revenues. For the first time, we present a comprehensive review of the various tax contributions from high-tech workers and companies. High-tech serves as the ‘growth engine’ of the economy and its 'shock absorber' during crises. The insights from this analysis reinforce the importance of government action to protect the sector and ensure its continued growth, even during economic slowdowns.”
The report highlights a significant gap between high-tech workers and the rest of the economy: the average monthly income tax payment of a high-tech worker in 2021 was 6,966 NIS, 6.3 times the average for the rest of the economy. The Israeli economy is increasingly reliant on income tax payments from high-tech: between 2016 and 2021, income tax collection from high-tech workers increased by about 66% in real terms.
Foreign companies such as Nvidia, Intel and Google play a significant role in the local high-tech industry, both through their purchases and their contribution to innovation. Despite their workers representing only about 20%-25% of the total high-tech workforce, and foreign companies constituting only 0.3% of all business companies – their contribution accounts for more than a third of the total high-tech contribution to state revenues, both in terms of work-related taxes and corporate tax.
Unsurprisingly, most of the state's revenues come from the center of the country, reflecting the underrepresentation of certain populations in high-tech. In 2021, 57% of tax payments came from the dominant group of employees in the industry—men, Jewish (non-ultra-Orthodox), working in central Israel and Tel Aviv.
The report also reveals that women contribute less than 19% of the income tax in high-tech, which is lower than their relative share in the field (about a third). On average, a high-tech worker paid NIS 3,508 in income tax per month in 2021, which is six times more than workers in other sectors, who paid an average of NIS 583 per month. Almost 97% of income tax payments in 2021 from high-tech companies came from Jewish workers (non-ultra-Orthodox), totaling more than 21 billion shekels.
The report's authors estimate that, based on the increase in the number of high-tech employees between 2021 and 2023, along with the rise in the average salary in the sector, the direct contribution of the high-tech sector to state revenues and its share of overall revenue have likely increased during these years.