New study: Israeli tech sector pays 36% of nation's income tax

The Israeli tech sector contributed more than one-third (36%) of Israel's income tax payments in 2021, according to a new report jointly compiled by the Israel Innovation Authority (IIA) and the Finance Ministry’s chief economist division. Furthermore, the tech sector contributed (24%) of all tax revenue during the same period.

IAA CEO Dror Bin emphasized the significance of Israel’s human capital and the tech sector as a growth engine for the nation's economy.

“Today’s data highlights the fact that Israel’s natural resource is human capital – responsible for most of the state’s revenue from high-tech,” Bin assessed. “High-tech serves as the ‘growth engine’ of the economy and acts as a ‘shock absorber’ during crises.”

He consequently called on the government to protect the tech sector amid financially difficult periods, likely referring to Israel's current war in Gaza against Hamas terrorists and the ongoing conflict with Hezbollah and other Iranian terror proxies.

“The insights from this analysis reinforce the importance of government action to protect the sector and ensure its continued growth, even during economic slowdowns,” Bin stated.

He urged the Israeli government to “help us maintain Israel’s technological edge, cultivate the next generation of high-tech companies, and ensure that we continue to lead in global technological innovation.” The IIA assessed that “the creation of a state commitment to the success of Israeli high-tech may send a positive signal to the market.”

In June, Bin noted that the Israeli tech industry had succeeded despite many global and domestic challenges, including last year's controversial judicial reform and the ongoing conflict since last October. However, he warned that the tech sector’s future success depends on a continued infusion of global and government funds

“In a sector reliant on foreign capital for growth, this is a significant threat, and we must ensure that a funding shortage scenario does not materialize,” Bin stated.

In recent years, the “Start-Up Nation” Israel has established itself as a global center for technological innovation. While the Israeli tech industry accounts for about 12% of the workforce, it contributed 20% of Israel’s GDP in 2023 and a whopping 53% of Israeli exports.

Furthermore, the average Israeli tech monthly salary in 2022 was $7,500, around 2.7 times higher than the national salary average during this period. This reality has created significant salary gaps within Israeli society.

“It is important for the state to ensure that high-tech employment continues to grow and that the number of employees in the high-tech sector at least maintains its relative share of the total number of employees in Israel,” the IIA urged.

While the tech sector has expanded in recent years, women, ultra-Orthodox Jews and Arab-Israeli citizens are still under-represented in Israel’s financially most successful sector.

Bin urged the Israeli government to invest in high-quality education for all sectors of Israel’s diverse society.

“Therefore, it is crucial to continue investing significantly in quality education for all population groups in Israel,” he said. “It will expand the circle of high-tech employees, thereby boosting state revenues and strengthening the Israeli economy as a whole.”

Israel's advanced, export-oriented economy has close links with leading global tech companies like Microsoft and Intel. While the Gaza War has raised some domestic and international concerns about the Israeli economy, in February, 60% of multinational companies expressed confidence in the country's tech sector, according to an Ernst & Young poll.