The Israel Innovation Authority and the Chief Economist’s Office at the Ministry of Finance published a new report providing a first-of-its-kind in-depth examination of state revenues related to high-tech employment, including income tax and corporate tax payments.
The report, released on Aug. 13, reveals the substantial contribution of the high-tech sector to state revenues. In 2020, approximately a quarter of all tax payments in Israel derived from companies and wages came from the high-tech sector. Moreover, in 2021, employees in that sector were responsible for about 36% of all income-tax payments.
Most of the revenue from the high-tech sector is related to its workers, with 85% coming from taxing their wages (income tax, health insurance, national insurance), and only 15% from corporate tax. Over a six-year period, nearly 100 billion shekels (about $27 billion) were generated from income tax payments by high-tech workers, representing a third of all income-tax payments during this period.
“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,” said Dror Bin, CEO of the Israel Innovation Authority. “The insights from this analysis reinforce the importance of government action to protect the sector and ensure its continued growth, even during economic slowdowns. This data highlights the fact that Israel’s natural resource is human capital—responsible for most of the state’s revenue from high-tech. Therefore, it is crucial to continue investing significantly in quality education for all population groups in Israel.
“Moreover, given the high-tech sector’s contribution to state revenues and the Israeli economy, it is essential to significantly invest in research and development infrastructure and startups, which are the future growth engines of the sector. This understanding is reflected in the 2024 budget, where the Innovation Authority’s investment budget was increased by approximately 1 billion shekels. I believe this investment will yield significant long-term benefits for the Israeli economy.”
The report points to 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 shekels ($1,872.55)—6.3 times the average for the rest of the economy. This figure reflects the high wage levels in the sector and its substantial contribution to state revenues.
Its 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 has likely increased during these years.
The Israel Innovation Authority’s recommendations for policy measures, as outlined in the insights and recommendations document published today following the report’s release:
• Investment in R&D Infrastructure and Startups: As reflected in the 2024 budget, government investments in R&D infrastructure and startups operating in deep-tech fields (where the availability of private investment capital is low) should be increased in the coming years to maintain Israel’s technological advantage.
• Expanding the Employment Base in High-Tech: Efforts should be made to integrate underrepresented populations into high-tech—women, the Arab community and the haredi Jewish community—throughout all stages of life and career to reduce gaps and increase the welfare of these populations. To this end, efforts should be made to provide quality education, including core studies, to all populations in Israel and remove barriers to their integration into high-tech.
• Assessing the Impact of Multinational Companies: Despite the importance of multinational companies to Israeli high-tech, there is no need to create policies to deliberately increase their number. However, barriers to the activities of significant multinational companies not yet operating in Israel should be removed if such barriers exist.
• Improving Data Infrastructure for Policy-Making: The collection and use of administrative data should be expanded, and its quality and timeliness improved. Additionally, an administrative data system on the high-tech sector should be created in accordance with last year’s recommendations of the expert committee that published its findings to the Central Bureau of Statistics.
