The current situation suffers from the following distortions: •  Local-currency deposits are tax exempt; foreign-currency deposits in Israel are taxed. •  Savings schemes are exempt; tradable government and private indexed bonds are taxed. •  Unindexed government bonds are tax free, while similar private bonds are taxed. The tax, where applicable, is 35 percent, and in some cases higher.
There is thus a very grave distortion here. This situation causes serious damage to the functioning of the financial markets in the following ways: •  It obliges the business sector to depend on banks as almost the sole source of finance in Israel, and does not enable it to develop alternatives via the capital market.