General

News from Israel on August 1st, a law that has been adjusted and implemented since August 1st affects the nerves of many Israelis. The amended Law on Reducing the Use of Cash greatly reduces the legal limit for the legal use of cash and checks for daily business transactions from NIS 11,000 (1 NIS is about RMB 2) to NIS 6,000. The IRA said the move was aimed at fighting organized crime, money laundering and tax irregularities.

The IRA said in a statement that the amount limit applies to day-to-day business transactions, which include payments to self-employed and freelancers. In addition, the upper limit of cash payments for buying and renting properties has also been adjusted from NIS 50,000 to NIS 15,000. Tax office legal officer Tama Braha said criminal organisations often rely on cash transactions, so restrictions had to be put in place.

According to reports, since the implementation of the “Cash Reduction Law” in January 2019, about 12,500 business entities have been fined a total of NIS 5 billion for breaking the law. Cash transactions are seen as fuel for the shadow economy because they are difficult to trace. The shadow economy refers to the economic market in which it is difficult for the state to implement tax management and monitoring, and is often associated with economic crimes such as money laundering and tax evasion.

A previous World Bank report stated that the size of Israel's shadow economy is equivalent to 22% of the country's gross domestic product. Israeli media generally believe that the amendment to the "Cash Reduction Law" will more efficiently monitor transactions, combat tax evasion, and curb black market activities.

However, the effectiveness of restricting cash transactions in combating money laundering is more controversial. Since the "Cash Use Reduction Law" came into effect three years ago, the market cash flow has only increased, and the legal effect is obviously limited. In addition, out of a population of nearly 9.45 million in Israel, about 1 million are unbanked, and restrictions on cash transactions will undoubtedly affect them even more.

The good news is that Israeli law restricts citizens from using cash for transactions, but does not yet restrict cash holdings. The Israeli government had included a provision in an economic arrangements bill attached to the state budget that would prohibit citizens from holding more than NIS 200,000 in cash at home, but that provision was removed from the final bill.