taxman

Business owners who must repay undeserved COVID grants go to battle with the taxman

Tzameret Dvir Avivi, 47, is a kindergarten music teacher in the central Israel area. She brings maracas, castanets and tiny drums to 3-year-old mini-students, brightening their daily routines.

Avivi, who has been teaching music since 2008 as a self-employed professional, saw her workload plummet in 2020 when the COVID-19 pandemic swept through Israel, shuttering schools and businesses amid restrictions aimed at keeping the deadly virus at bay.

“In 2020 I worked for only three months,” Avivi said in a phone interview with The Times of Israel.

Lockdown measures in Israel, which began in mid-March 2020, brought the economy to an near-total standstill. Unemployment figures jumped from a record low of under 4% at the beginning of March to some 28% by late April, as many businesses were forced to close their doors. The number of unemployed surpassed one million for the first time in Israel’s history, 85 percent of whom were put on unpaid leave (furloughed).

When the lockdowns took hold the government paid out monthly benefits to furloughed employees, but the financial relief skipped over self-employed workers, small business owners and freelancers. It was only after these professionals took to the streets in protest that a law was passed providing them with grants to help them economically survive the pandemic.

According to legislation passed in 2020 and 2021, small businesses and self-employed people who posted a drop of 25% in their turnover during the lockdown periods and of 40% between the lockdowns, compared to the same periods in 2019, were eligible to get a government grant. The grants were provided based only on the estimates and declarations of the businesses themselves, with no proof of a turnover drop required in real-time. The idea was to inject much-needed funds into these businesses immediately to keep them from going under, while a final reckoning would come later.

Then-Prime Minister Benjamin Netanyahu (center) and Finance Minister Israel Katz (right) meet with representatives of self-employed Israelis and small business owners at the Prime Minister’s Office in Jerusalem, July 10, 2020. (PMO)

The grants were calculated (Hebrew) and provided to businesses, freelancers and self-employed people every two months, on the basis of an estimated drop in turnover compared to the same periods in 2019.

If these businesses later posted a higher turnover than originally estimated by the owners, they’d have to refund the tax authority for the funds they received for the months in which the grants were overpaid.

Because Avivi’s turnover dropped some 90% during 2020, she received a government grant of NIS 17,000 for every two-month period. But because in June 2020 she got paid for the months of January and February, during which she had worked, her turnover drop in the May-June period was some 38%, just under the 40% threshold set by the law which would have made her eligible for a grant for that two-month period.

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