This Publication, Dealers and Revenue of the Total Economy According to Value Added Tax2014

1.General

This publication, Dealers and Revenue of the Total Economy According to Value Added Tax2014–2016,continues previous relatedpublications starting with data from 1987. In 2011, the Central Bureau of Statistics started to use the new Standard Industrial Classification of All Economic Activities, and consequently a new, improved sample was drawn (for explanations of the new sampling method, see Chapter 4).

Annual Tables

The tables present data on revenue of a sample of VAT dealers at current prices and at 2011 prices. In addition, data are presented by industry on the following topics: the number of dealers, price changes, real changes in revenue, aspercentages of the total revenueof the input and revenue on which noVAT is due.

Table 11 presents the demography of businesses, which is calculated according to the Business Register and not according to the VAT sample.

Also are presented diagrams that describe the distribution into industries of the following criteria: revenue, number of dealers, inputpercentages, and revenue from a zero VAT rate due in 2016.

The division into industries is based on the Standard Industrial Classification of All Economic Activities 2011.[1]

2.Main Findings

2.1 Total Revenue of the Total Economic Activities and the Changes in It (Tables 1, 3)

The total revenue in the economy, excluding diamonds, of dealers who reported to the VAT authority, amounted NIS 1,838 billion in 2016, compared with NIS 1,770 billion in 2015.

The nominal change in 2016 was anincreaseof3.8% in comparison with 2015. After deduction of the rise in prices according to differential price indices (see Paragraph 4.6), the quantitative change in the revenue of the total economy between 2015 and 2016 was anincrease of 5.0%.

The quantitative change in revenue in 2016 was not uniform across industries: In Manufacturing (excluding diamonds), Mining and Quarrying (Sections B–C), a decrease of 0.3% in real terms was recorded; in Electricity and Water Supply (Sections D–E) an increase of 4.2% in real terms was recorded; in Construction (Section F)– anincrease of 10%; in Wholesale and Retail Trade and Repair of Motor Vehicles (Section G) –an increase of 5.8%; in Information and Communications (Section J) – an increase of4.9%; in Financial and Insurance Activities (Section K) – an increase of6.0%; in Real Estate Activities (Section L) – an increase of 1.7%.

2.2Distribution ofRevenue and Dealers, by Industry (Tables 1, 2)

In 2016, there were approximately533,000 active dealers in the economy, of which approximately 23,000 engaged in Manufacturing (excluding diamonds), Mining and Quarrying (Sections B–C), 91,000 in Wholesale and Retail Trade, and Repair of Motor Vehicles (Section G); 157,000 in Real Estate Activities, Professional, Scientific and Technical Activities and Administrative, and Support Service Activities (Sections L–N); and 37,000 in Arts, Entertainment and Recreation, and Other Service Activities (Sections R–S).

In 2016, approximately 4% of the total dealers in the survey engaged in Manufacturing (excluding Diamonds), Quarrying and Mining (Sections B–C), and their share in the total revenueof the industrieswasapproximately 21%; approximately 17% of the dealers were engagedin Trade and Repair of Motor Vehicles industry (Section G), and their share in the total revenue of the industries was29.5%;approximately 20% of the dealers were engaged in Professional, Scientific and Technical Activities (Sections M), and their relative share in the total revenue of the industrieswas6.5%; approximately 7% of the dealers were engagedin Arts, Entertainment and Recreation and Other Services (Sections R–S),and their share in the total revenue of the industries was approximately 1% of the revenue.

This difference in the characteristics of the industries derives from the centralization of revenue that exists in Manufacturing, Mining and Quarrying (Sections B–C), as opposed to the spread of dealers that exists, for example, in the Professional, Scientific and Technical Activities (Section M). The centralization of revenue is reflected in the fact that a small number of dealers have a relatively big share of the total revenue. Concurrently, the spread of dealers is reflected in the fact that a large number of dealers have a relatively small share of the total revenue.

2.3VAT Partnerships (Table 10)

Centralization of the revenue as opposed to the spread of the number of dealers is also reflected in an analysis of the distribution of VAT partnerships in the sample (see Paragraph 3.4.2). Dividing the partnerships into revenue groups in 2016indicates that approximately 57% of the partnerships reported a revenue of NIS 1 million or less, and their share in the total partnership revenue constituted less than 1%, whereas only 4% of the partnerships reported revenue higher than NIS 100 million, and their share in the total partnership revenue was approximately 86%.

Noteworthy, most partnerships with low revenue are those of self-employed persons who joined, and not of companies.

According to the business registry, in 2016 there were approximately 25,000 partnerships –of which approximately 6,500were self-employed persons.

2.4Statistics on Dealers, by Frequency of Reports

The pattern of reporting to the VAT authority is monthly, bimonthly or annual. It was found that in 2016, approximately 17.5% of the dealers reported every month, and their share in the total revenue in the economywas approximately 89%; 82% of the dealers reported bimonthly, and their share in the total revenue in the economy was approximately 10%; and approximately 0.5% of the dealers reported once a year, and their share in the total revenue in the economy was approximately 1%.

The reporting frequency is determined by the VAT authority. Each dealer whose revenue in the previous year was higher than NIS 1,500,000 should report monthly, while the other dealers should report bimonthly.

Some of the dealers who report annually are located in Eilat, in the free trade zone, and report revenue that is exempt from VAT (except for durable goods).

2.5Revenue percentagesfromZero VAT Rate Due (Table 4)

Table 4 presents the percentage of the total revenue from zero VAT rate due. In Agriculture (Section A) this value constituted in 2016 approximately 38% of the total revenue, and it derived from the sale of fruits and vegetables and from exports; In Manufacturing (excluding diamonds), Mining and Quarrying (Sections B–C), this value constituted approximately 45% of the total revenue, and derived mainly from exports; In Wholesale and Retail Trade and Repair of Motor Vehicles (Section G), this value constitutedapproximately 12% of the total revenue, and derived from the sale of fruits and vegetables; In Accommodation Services and Restaurants (Section I),this value constituted approximately 16% of the totalrevenue, and it derived from the exports of tourism services;In Transportation, Storage, Postal and Courier Activities (Section H),this value constituted approximately 38% of the total revenue; and derived mainly from the exports of sea and air transport services; In Telecommunications, Computer Programming and Consultancy, and Related Activities and Information Service Activities (industries 61–63 in Section J) this value constituted approximately 46% of the total revenue.

It is important to note that this table does not include data on "Exempt Dealers" (see Paragraph 3.1). Data on those dealers are presented in Tables 12 and 13.

2.6Inputs on which VAT is Due (Table 5)

Table 5 presents percentages of the inputs on which VAT is due, of the total revenue. The reports include inputs for investment, acquisition of equipment and buildings, and other current inputs. Those data consist mainly of current inputs for production and purchase of equipment, and does not include VAT-exempt inputs, such as fruits and vegetables.

In 2016, the rate of the inputs in Manufacturing (excluding diamonds), Quarrying and Mining (Sections B–C) was approximately 62% of the total revenue; In Electricity and Water Supply (Sections D–E) –approximately 72% of the total revenue. This includes, as mentioned,current inputs for production and investments, e.g., fuel for electricity production, as well as electricity that serves as an input in the Water Supply industry. In addition, inputs include, as mentioned, acquisition of machinery and equipment; In Construction (Section F), the rate of the inputs was 74% of the total revenue, and they were used for construction and acquisition of equipment as an investment.

In the Wholesale and Retail Trade, and Repair of Motor Vehicles industry (Section G), the inputs were approximately 75% of the total revenue. These inputs were the goods purchased by the industry for sale purposes.

In Information and Telecommunications (Section J), the rate of inputs was 36% of the total revenue; in the Financial and Insurance Activities industry (Section K) – 47%; in Real Estate, Professional, Scientific and Technical Activities and Office Administrative and support activities (Sections L–N) – 46%; in Arts, Entertainment and Recreation (Section R) – approximately 50%. The main factorof the inputs in this industryis the equipment factor, such as: cinema halls, theatres and various sport facilities.

2.7Statistics on Dealers, Revenue and Gross Value Added for Trade Industries (Table 6)

Table 6 presents the number of active dealers, revenue, gross value added and the changes in real terms in the gross value added for 2016 in Trade industries only.

Gross value added data for 2016 were estimated according to the change in real terms in revenue, based on VAT data.

In 2016, the gross value added in Trade industries increased by 5.9%. The gross value added weights are slightly different from the revenue weights, and therefore there might be usually a difference between the total change in real terms in the revenue, and the corresponding change in gross value added of the Trade industry, which is based on the Survey of Industries 2014.[2]

2.8Type of Dealer and Type of VAT File, by Industry (Table 7)

This table presents a cross-section of the revenue and number of dealers who are self-employed and employers, and of authorized dealers, companies and partnerships (see Paragraph 3.4.2). Unlike Tables 2 and 6, the number of dealers in Tables 7–10 is weighted by the number of months of activity.

Self-employed persons compared with employers

Of all active dealers in the economy who reported to the VAT authorityin 2016, approximately 50% were employers. However, there is a substantial gap between the share of the dealers who did not employ others and the share of employers in the revenue –6% and 94%, respectively.

Dealers According to Type of VAT file

In 2016,approximately5% of all dealers in the economy were partnerships, and their shareof the total revenue in the economycomprised approximately 36%. Approximately 69% of the dealers were authorized (not companies), and their share of the total revenue in the economycomprised approximately9%. 26% of the dealers were companies,and their share of the total revenue in the economy comprised approximately 55%.

In Wholesale and Retail Trade and Repair of Motor Vehicles (Section G) it was found that approximately 6% of the dealers were partnerships,and their share of the total revenue was approximately 36%;approximately 62% were authorized,and their share in the total revenue comprised approximately 9%; and approximately 32% were companies, and their share of the total renenuecomprised 55%.

In the Retail Trade (Industry 47) it was found thatthere is a higher percentage of authorized dealers – approximately 71% – and their share of the total revenue was approximately 16%.

In Information and Communication (Section J) approximately4% of the dealers were partnerships, and their share of the total revenue comprised approximately30%; approximately 51% of the dealers were authorized, and their share of the total revenuecomprised approximately 2%; and approximately 45% of the dealers were companies, and their share of the total revenue comprised 68%.

In Financial and Insurance Activities (Section K) it was found thatapproximately6% of the dealers were partnerships,and their share of the total revenue comprised 37%; approximately 50% were authorized, and their share of the total revenue comprised approximately8%; and approximately 44% were companies, and their share of the total revenue comprisedapproximately 55%.

In Real Estate, Professional, Scientific, Technical, and Administrative and Support Service Activities (Sections L–N) it was found that approximately 5% of the dealers were partnerships, and their share of the total revenue comprised 26%; approximately 66% were authorized, and their share of the total revenuecomprised 12%; and approximately 29% were companies, and their share of the total revenue comprised approximately 62%.

In Education, Human Health and Social Work Activities and Other Services (Sections P, Q and S) there is a high percentage of authorized dealers.

2.9Quantitative Characteristics of Revenue, by Industry (Table 8)

This table presents quarterly values and average of revenue for the entire economy, detailing Trade and Services industries for 2016. The quarters in this table are calculated per single business.

The boundary of the lowest revenue quartile in Wholesale and Retail Trade, and Repair of Motor Vehicles (Section G) varies among the different groups, and ranges from NIS 95,000 in Groups 478–479 (Retail Sale via and not via Stalls and Markets) to NIS 999,000 per year in Group 473 (Retail Sale of Automotive Fuel in Specialized Stores). By comparison, the boundary of the lowest revenue quartile in the overall economy was NIS 128,000 per year.

The meaning of the lowest quartile is that onequarter of all dealers had revenue which was equal to or less than this value.

2.10Size Groups of Revenue, by Industry (Tables 9–10)

Table 9 examines the total economy activities, by permanent size groups of revenue amounts. This distribution enables the examinationof the amount of centralization in the industry, by comparing the percentages of dealers and revenue in itssize groups of revenue. The size of the revenue group is defined by the quality on which the analysis focuses. It was possible to present the low revenue groups, so the distribution of dealers is more complete; it was also possible to present the high revenue groups, then a more comprehensive distribution of the revenue is presented. In this publication, the second alternative was chosen. For example, in 2016, approximately 60% of the dealers in Manufacturing (excluding diamonds), Mining and Quarrying (Sections B–C) yielded revenue of up to NIS 1 million, whereas only 2% of the dealers in these industries yielded revenue of over NIS 100 million – approximately 80% of the total revenue of the industries.

Note

Tables 8 and 9 supplement the information on the industry distribution by size. Table 9 does not give enough details regarding dealers whose revenue amounted up to NIS 1 million. Rather, it presents the dealers whose revenue was the highest one in the economy. However, Table 8 enables the division of this group through the quartile revenue values.

2.11Openings and Closings of Dealers Files – Demographics of Dealers in the Business Sector, by Industry (Table 11)

One of the important criteria for examining financial activity in the economy is the number of dealers' files that opened and closed during the calendar year. By means of this index, it is possible to estimate changes in the scope of activity in the economy and its business dynamics. A summary of the total gross entries of openings and closings of dealers' filesindicates the dynamics of the economy, and a summary of net entries of openings and closings indicates the expansion or decrease of the business activities in the economy. Closer examination by industries shows those trends of activity in specific industries and their dynamics.

The data in Table 11 were calculated from the Business Register file, which was established at the CBS. The Business Register includes information from the VAT file and the employers’ file of the National Insurance Institute.The definition of opened dealers' files includes those about whom it was reported that their activity began during the current year, even if revenue on which VAT is due was not reported. Included as well were such that had been considered closed – and the dealers reported that they resumed activity.The definition of closed dealers' files includesthose about whom it was reported in the VAT authorityduring the current year that they are closed, including files of dealers who reported no revenue data before their closing. As opposed to other tables in this publication,in this one Manufacturing also includes diamonds, and Wholesale Trade also includes trade in them.

Table 11 shows that in 2016, approximately 55,000 dealers' files opened, and approximately 42,000 dealers' files closed – an increase of approximately 13,000 dealers in the business sector, similar to the increase of in 2015.

The number of dealers in Information and Communications (Section J), which include start-up companies, grew by 3.2% in 2016. The number of dealers in Wholesale and Retail Trade and Repair of Motor Vehicles (Section G)grew by 1.0%;in Accommodation Services and Restaurants (Section I) – by1.5%;in Human Health and Social Work Activities (Section Q) –by 2.1%; in Construction (Section F) –by4.6%;in Electricity and Water Supply (Sections D–E) –by3.1%.

In sum,an increase of 2.4% was recorded in the number of dealers reporting to the VAT authority of the total economy in 2016.

3.Definitions and Explanations

3.1General Definitions

The survey population – All the dealers who were active (see definition of Active Dealer below) between 2014 and 2016. According to the definition of a dealer, the population does not include banks, insurance companies, provident funds, non-profit institutions (NPIs), and government and municipal institutions. Similarly, data for Manufacturing industries do not include the Diamond industry.

Exempt dealer – defined in the Value Added Tax (VAT) Law as a dealer whose annual turnover does not exceed NIS99,006 in January 2016 (the amount is updated according to the increase in the Consumer Price Index). The transactions of exempt dealers(excluding land transactions) are not subject to VAT, and exempt dealers do not charge their clients VAT. The turnover of exempt dealers from transactions is reported to the VAT authority once a year, solely to ratify or change the dealer’s legal status. The file received every month from VAT does not include exempt dealers. Therefore Tables 1–11 in this publication do not include the transactions of those dealers. Tables 12–13 present data on the amount of exempt dealers and their revenue for every industry. Those tables indicate that the largest number of exempt dealers was in Other Service activities (24,427 dealers), followed by Human Health and Social Work Activities (20,770 dealers).The share of the dealers in these industries as a percentage of the revenue of total exempt dealers was the highest compared with liable dealers. In Education (Section P) and Other Service activities (Section S) the numbers of exempt dealers were 17,018 and 24,427 respectively – more than the total number of dealersin this industrywho are obligated to report to theVATauthority.

Dealer– defined for VAT as one who sells products and assets or supplies services, and is not a non-profit or a financial institution; alsodefined for VAT someone who conducts a random transaction.