Israel to scan every tax return with AI after finding $7 billion gap
Tax Authority says artificial intelligence tools already identified major discrepancies and could expand enforcement from a 4% sample to full coverage of filings, as officials look for ways to boost revenue without raising taxes on the middle class.
Artificial intelligence could soon transform tax enforcement in Israel, with the Tax Authority planning to review virtually every tax filing submitted in the country instead of the roughly 4% examined today.
Speaking at the Eli Hurvitz Conference on Economy and Society in Jerusalem, Tax Authority Director Shay Aharonovich said new AI-based tools have already helped identify discrepancies totaling NIS 20 billion (approximately $7 billion) by comparing capital declarations with other financial data held by the authority.
“We are moving toward reviewing 100% of all reports,” Aharonovich said. “Today we scan only 4%. We compared capital declarations in our systems with other reports and identified gaps totaling NIS 20 billion.”
The comments offer a glimpse into how artificial intelligence could dramatically expand tax enforcement capabilities at a time when the government is searching for ways to increase revenue without imposing additional taxes on the middle class.
Aharonovich said he opposes broad tax increases on households and believes revenue can be raised through improved collection and targeted policy changes. Among the measures he supports are eliminating the VAT exemption on fruits and vegetables, reducing tax benefits on purchases in Eilat, ending the VAT exemption that allows buyers to purchase gold bars and leave them in Eilat tax-free, introducing a mileage tax, and promoting a land value tax.
The Tax Authority chief also defended recent tax increases, arguing that they played a significant role in stabilizing government finances. “We reached NIS 509 billion in revenues in 2025 instead of NIS 460 billion,” he said. “You can imagine what level of deficit we would be facing today otherwise.”
According to Aharonovich, the Tax Authority recently raised its 2026 revenue forecast from NIS 540 billion to NIS 560 billion. The updated forecast is expected to be published soon as part of the government's fiscal outlook.
The discussion at the conference quickly expanded beyond tax collection to broader questions about government spending and economic priorities.
Budget Commissioner Mehran Prozenfar said he is opposed in principle to raising taxes and argued that Israel should instead make difficult decisions regarding public spending.
“We need measures that increase net income, but in order to do that we need to make difficult decisions about priorities,” Prozenfar said.
He focused largely on defense spending, describing it as the largest component of the state budget. According to Prozenfar, Israel needs to formulate a new security doctrine and reference scenario and build a corresponding multi-year budget framework.
Prozenfar also highlighted the economic burden of reserve military service. “We cannot continue with such a volume of reserve duty days in the economy,” he said, though he did not address whether broader enlistment of ultra-Orthodox Israelis could help ease that burden.
Former IDF Chief of Staff financial adviser Gil Pinchas directly addressed the issue, arguing that “the solution to the reserve duty challenge is the enlistment of all sectors of society.”
Pinchas said the central question facing policymakers is not whether to add or subtract NIS 10 billion from the defense budget, but how to define Israel’s long-term security strategy. He also warned of growing financial pressures, including a sharp increase in spending on disabled veterans. According to Pinchas, the annual budget for disabled veterans, currently around NIS 6.5 billion, could rise to NIS 15 billion in the coming years.
He also pointed to the gradual reduction of U.S. military assistance and argued that Israel should compensate by expanding joint defense projects with the United States.
Dr. Adi Brender, head of the Research Department at the Bank of Israel, likewise argued that Israel needs “far fewer taxes and far more difficult decisions.”
Brender identified several areas where spending could be redirected to support infrastructure and civilian investment without increasing taxes. He cited public transportation subsidies as one example, arguing that resources could be used more effectively to improve infrastructure itself.
“Research shows that service quality is significantly more important than price,” Brender said.
He also highlighted long-term care spending, which he said has exceeded original projections by roughly NIS 10 billion due to expanded eligibility criteria for benefits.
Brender further pointed to spending on ultra-Orthodox education, arguing that significant resources are directed toward education systems that do not adequately prepare students for participation in the labor market.
“We spend a lot on education systems that do not contribute to labor-market skills, and those resources could be used elsewhere,” he said.
He also criticized the rapid growth in special education spending, arguing that the expansion has not necessarily produced effective outcomes.
Concluding his remarks, Brender argued that broader military participation could generate substantial economic benefits.
“If we move to a model of service for everyone,” he said, “we are talking about many additional billions of shekels without raising taxes.”
