A severe blow to northern business owners: Out of nearly NIS 6 billion transferred to businesses in Kiryat Shmona, the state is now demanding NIS 238 million back. Consequently, the Kiryat Shmona Municipality is initiating legal proceedings against the State of Israel and the Tax Authority, demanding the cancellation of the return demand and an extension of the period recognizing indirect damage to the city’s businesses.
The advance payments received by businesses in 2023-2024 were used at the time to pay salaries and suppliers, and now demands for their return are taking shape - so that business owners who are barely making ends meet are being asked to return money already paid to their employees. In June, about 35 business owners signed an appeal to the municipality asking it to act on their behalf. The municipality sent two documented letters exhausting legal procedures, but received no response.
The legal step, initiated by the mayor and municipal leadership, aims to protect hundreds of business owners left outside the compensation circle after the Tax Authority determined that indirect damage in Kiryat Shmona ended on February 28, 2025. In practice, to this day, businesses in Kiryat Shmona have not returned to full activity, and some have not returned at all. Thus, the municipality's demand is to recognize ongoing damage from October 7, 2023, until the city returns to its pre-war state. The municipality emphasized that it is not a taxpayer and has no compensation claim of its own, and that it took on the struggle solely for the residents and business owners.
Behind the Tax Authority's determination lies a harsh reality: Business turnover in the city plummeted from NIS 778 million to NIS 589 million, and net VAT dropped from NIS 23 million to NIS 12 million. The income index in Kiryat Shmona fell by 31%, compared to a national average decline of only 4%.
A business opening its doors after two years does not continue from where it left off, but starts anew - without regular customers, without employees, and with debts accumulated while the shutters were closed. Now, with the return rate of residents to the city standing at only 55% to 76%, a major segment of customers is simply not there.
The municipality clarified that it does not dispute the authority's power to set dates, but rather the date itself, which was set without individual justification for Kiryat Shmona.
"We did not ask for a favor, we asked that they look this city in the eye and see what is actually happening in it," Mayor Avihay Stern said. "The business owners here held Kiryat Shmona together when everyone was outside. Now it is our turn to support them. For us, the war did not end on a date someone marked on the calendar."
If the letter is not answered within two weeks, the municipality will file a petition with the High Court of Justice along with a request for an interim injunction.
Tax Authority: 'Businesses received 13 billion, some received excess advances'
The Tax Authority stated that "the demand for returns totaling NIS 238 million is from businesses in all conflict-zone communities and not only Kiryat Shmona. NIS 13,846,994 is the total amount of returns demanded from businesses in Kiryat Shmona that received excess advance payments."