ISRAEL - Banks Fear Reforms Will Cause Glitches

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Title: Banks fear reforms will cause glitches

By Sami Peretz Ha'aretz Banking Correspondent

May 5, 2000

The banking system reacted with mixed feelings and considerable apprehension to the Ben-Bassat Report.

Most of the details had been leaked to the media, so there were no major surprises. However, the interim orders issued about savings plans and deposits left bank officials concerned that technical glitches would be unavoidable, particularly in the weeks ahead.

Officials in some banks said their existing computer systems are not capable of providing the documentation and registration of operations that customers will carry out in the immediate future. The registration procedure is especially relevant to money deposits in the coming month.

The interim orders stipulate that money deposited from now will be liable for tax beginning January 1, 2001 - but to carry out this calculation, documentation of the deposit from the time it was made will be needed.

Officials in one of the large banks said that a great deal of automation work will have to be done in the sphere of provident funds (kupot gemel) to enable the banks to distinguish between old and new funds. Similarly, intensive work will be needed to identify new and old money in the "training" funds (kranot hishtalmut).

Banks recommend to clients that beginning immediately they retain every document and every paper that documents the banking operations they carry out. The statements of current accounts should also be retained for good measure.

"People should not expect the banks to do the work," a senior bank official said.

Banks usually provide depositors with details of their savings that include the current value of a deposit and its value if withdrawn on the due date. However, under the new conditions the banks will have to take into account the 25-percent capital gains tax in calculating the future withdrawal value. The problem is that some banks are unable to provide that data on an immediate basis, nor is it clear whether the client will opt to withdraw the money on the specified date.

It is already clear that anyone who opened a savings account before 3 P.M. yesterday - when Finance Minister Avraham Shochat's order prohibiting banks from opening new savings plans came into effect - will not have to pay tax on real profits, though this depends on what kind of plan they opened.

Those who opened a five-year savings plan without an option to withdraw money for the entire period will enjoy full interest for the entire savings period. However, those who opened plans with "exit stations" at the end of two years will have to pay tax on the profits that accrue during the remaining three years of the plan.

By some estimates, up to NIS 3.5 billion was deposited in savings plans since the start of the week in an effort to evade the tax threat. That is hundreds of percent more than the average deposits in normal times.

http://www3.haaretz.co.il/eng/scripts/article.asp?mador=2&datee=05/05/00&id=77429

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