Property Tax : State-Owned Lands, Infrastructure, and Public Use: Overview (2026)

Note: At the time of writing, a draft amendment of the law is being discussed in the Israeli Parliament (Knesset).

The 2026 Property Tax Reform – Defining Ownership and Land Israel's land regime is distinct; approximately 93% of the country's land is publicly owned and managed by the Israel Land Authority (ILA - "Rami"), while only 7% is privately held, primarily in high-demand urban centers (Source: ILA Annual Report; CBS Data). The 2026 Property Tax reform targets these strategic holdings by imposing a 1.5% annual levy on "vacant land."

To navigate this suggested reform, two legal definitions are paramount:

1. "Owner": Under Section 1, this includes not only registered titleholders but also long-term lessees for periods exceeding 25 years, effectively applying the tax to most ILA leaseholders.

2. "Land": The law focuses on plots where the built-up area is less than 10% (for the 2026 transition) or 30% of the total permitted building rights, ensuring that the fiscal burden falls on underutilized real estate with significant development potential.

1. The State as a "Taxpayer": Does the State Pay Itself?

As a general rule, lands held in full ownership by the State (State of Israel, Israel Land Authority) or by a local authority are exempt from property tax.

• The Logic: There is no economic significance to transferring funds from one governmental "pocket" (e.g., Ministry of Transport/Education) to another (the State Treasury).

• The Lease Exception (Critical): If the State leases the land under a Long-term Lease for a period exceeding 25 years (e.g., to a developer, contractor, or non-profit association), the obligation to pay the tax shifts to the lessee. Under Section 1 of the Law, a long-term lessee is defined as the "Owner" for all purposes regarding the 1.5% tax liability.

2. Land Designated for Roads and National Infrastructure

In this context, the "Planning Test" (or "Availability for Construction" test) is applied:

• Designation for Roads: Land defined under a Detailed Building Plan (TABA) as a "road" or "railway" is not considered land with "development potential" in the standard real estate sense.

• Exclusion from the Definition of "Land": According to the original law (which remains in effect on this point), land that lacks building rights for structures (residential/commercial/industrial) and is designated solely for "wet infrastructure" or roads will generally not meet the definition of taxable "Land." This is because its economic value is derived from public use rather than fair market value (Section 1 - Definition of "Land").

• Infrastructure Corporations: Entities such as NTA (Metropolitan Mass Transit System) or Israel Railways usually benefit from specific exemptions anchored in their founding statutes or by virtue of being an arm of the State, provided the land is used for its distinct public purpose.

3. Land for Schools and Public Institutions ("Brown Zones")

For these lands, the situation is more complex:

• Actually Built: If a school is constructed and the built-up area exceeds 30% (or 10% under the 2026 transitional provision) of the permitted rights, no property tax is due (Section 3(b) - Transitional Provisions).

• Vacant Land (Reserves): If a local authority or the State holds a vacant lot designated for a school:

  • If owned by the local authority – an exemption applies (Section 40).

  • If held by a private entity or association and merely designated for future expropriation or public construction – the owner may find themselves liable for property tax on land they cannot independently develop, until the actual moment of expropriation. This is a primary point of criticism against the reform.

4. Land Designated for Expropriation

Section 16 of the Law allows the Director of Property Tax to reduce the tax or grant an exemption in cases of an objective impediment to construction.

If it is proven that the land is "frozen" due to a national infrastructure plan (such as Highway 6 or a railway line), the taxpayer may file an objection, arguing that the land's market value is negligible or that it is not "available for construction," thereby justifying a tax cancellation.

In Conclusion:

The reinstatement of a 1.5% property tax marks an abrupt pivot in Israel’s fiscal policy. Characterized by many as a "wealth tax" on dormant capital, its introduction during a period of prolonged conflict and economic uncertainty—when the financial resilience of the average citizen is under immense strain—raises significant societal questions.

As the legislation is still undergoing active deliberations within Knesset committees, it is imperative for landowners to remain proactive and monitor updates until the final statutory version is officially enacted.

Last Thoughts

This reform ignites a poignant debate regarding distributive justice and the risk of double taxation. Is it equitable to place the entire fiscal burden on long-term lessees (Hachira Ledorot)?

These individuals, who already pay lease and usage fees to the Israel Land Authority, now find themselves taxed again by the State for the very same land.

While the government justifies this under the legal doctrine that lessees are the "primary beneficiaries" of the property’s value and potential appreciation, a fundamental question remains: Should the State, as the historical owner, not share in this burden? Or does a lessee only truly become an "owner" the moment the tax bill arrives?

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