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April 21, 2014 / 21 Nisan, 5774
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Israeli Tax Authority Kills the Next Great Startup

In their eagerness to catch some taxi drivers, did the Tax Authority destroy the trust and reputation of an innocent and promising start-up?
GetTaxi just got got.

GetTaxi just got got.

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An innovative Israeli start-up company came up with a great idea in 2010, which it dubbed GetTaxi. The idea is simple and convenient: the GetTaxi mobile app allows you to order a taxi, pay for the ride, rate the driver, and even leave a tip. For the drivers, it offer the convenience of automation, handling the billing, and notifying drivers of potential nearby clients.

This start-up has been so successful, it has reached a million users, making 20,000 orders a day to 6000 drivers, in 20 cities, not to mention, raising $42 million in funding.

But the Israeli tax authority may have just killed this enterprising young start-up.

Last week, the tax authority concluded its investigation of 89 businesses in various sectors. A team of 102 investigators managed to collect about $2.2 million from these businesses, which had under-reported their income.

One sector the team investigated were taxi drivers, traditionally a cash business. But the tax folks had a great idea. They subpoenaed GetTaxi’s internal files, obtaining the records of some three thousand Israeli taxi drivers who used the GetTaxi service. The team then targeted 50 of them, according to a report in Globes.

They compared the orders listed in GetTaxi, and the income the taxi drivers reported, and found that most of the drivers had not recorded all their journeys.

Most of the drivers ended up with a simple fine, some of the more serious cases are undergoing further investigation.

Tax Authority chief Moshe Asher told Globes, “The Tax Authority is keeping its finger on the trigger and uses all technological means to make certain that all citizens and companies pay the true amount of tax and do not put the tax burden on law-abiding citizens.”

In the process, the same tax authority possibly just destroyed a law-abiding start-up company, which had a promising future.

Its unlikely Israeli taxi drivers will continue to completely trust GetTaxi with their business, and that could affect not only GetTaxi’s revenue, but even a future exit or IPO, potentially killing the goose that could have laid the golden income tax egg GetTaxi would have brought in.

But Israelis are a resourceful people. We’ll have to see how each side responds to this challenge.

Not to worry though, in New York and other major cities, the company continues to do well, and the Israeli tax authority is not likely to have a chilling effect on its operation. The IRS is simply less fiercely dedicated than its Israeli counterpart.

True story: A few years ago, a falafel booth owner was approached by a man from a yeshiva, who inquired if Shlomi were willing to donate to the yeshiva the edges from the pita he cuts off when he makes each falafel sandwich? It would feed poor students, the man explained, and help cut back on the yeshiva’s costs.

Shlomi agreed. It’s a good deed, and he had nothing to do with all those pita edges other than dump them in the trash. How many garlic bread crisps could he possibly make anyway?

A few months later, Shlomi and other falafel and shawarma (meat gyro) vendors found themselves inside the offices of Mas Hachnasa, the Israeli income tax authority.

They were surprised to see, sitting opposite them, the man from the yeshiva to which they had all been donating their pita edges, supposedly.

They were even more surprised with the man pulled out all the pita edges the vendors had donated to him, and said the number of edges that he, a tax investigator collected, exceeded the number of individual portions they had reported.

Needless to say, falafel and shawarma stores in Israel today slit the pita open, rather than cut off the top. There’s no evidence left behind that way.

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2 Responses to “Israeli Tax Authority Kills the Next Great Startup”

  1. Second article this morning…sounds just like the US.

  2. Bill Wingard says:

    Those Taxi drivers will find a way to cheat, most cash businesses seem to find a way

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