The Knesset’s Constitution, Law and Justice Committee met on Monday to debate an updated version of the controversial “NGO Funding Bill.”
Proposed by MK Ariel Kallner (Likud), the bill aims to regulate donations from foreign governments to Israeli non-governmental organizations by imposing taxation and legal restrictions on these firms based on the nature of their activities.
The initial version of the bill that passed a preliminary vote in February would have slapped an 80% tax on “foreign state entity” donations to NGOs. In addition, it would have enabled the finance minister, with the approval of the Knesset Finance Committee, to award a tax exemption in “special circumstances.”
Moreover, the court system would have been allowed to hear cases filed by NGOs whose “main funding” was from foreign state entities and who do not receive Israeli state funding.
The initial version drew widespread criticism. For example, Israel Democracy Institute researchers wrote in February that the bill constituted an “attack against democracy” since the majority of NGOs affected by the bill would be those that support human rights against government violations, and are critical of the current government.
Many of these NGOs receive funding from the European Union and other Western countries, such as the US, the UK, and Germany, and the researchers warned of potential harm to Israel’s standing among Western democracies.
Under the updated version of the bill, NGOs that declare they do not engage in political advocacy, demonstrations, parliamentary involvement, or criticism of the government will be exempt from special taxation.
Those that do not make such declarations will be taxed at 23%, mirroring corporate tax rates. Organizations submitting false declarations will face double taxation and monetary fines, and repeated violations could lead to dissolution proceedings initiated by the Registrar of Associations. Additionally, any NGO receiving foreign funding will be required to pay increased petition fees when appealing to the High Court of Justice.
Finance Minister Bezalel Smotrich attended the committee debate on Monday, and called for decisive action against what he termed “illegitimate and brazen interference” in Israeli affairs.
“To say we’ll simply tax it as corporate income is to imply legitimacy,” he said, defending the bill as setting “legitimate game rules,” not silencing dissent.
The Foreign Ministry’s Director-General, Eden Bar-Tal, lent support to legislative efforts curbing outside influence on core national interests, saying, “We see room for legislation that prevents foreign intervention in key Israeli priorities. At the same time, it’s vital to preserve beneficial activities aligned with Israel’s interest.”
Committee chair MK Simcha Rothman said that the new bill was beneficial to democracy. “There has been a flood of demagoguery surrounding this law, but at its heart lies an elementary truth: in a democracy, Israeli citizens must lead the discourse.”
He added, “Someone who believes that their view is unpopular in Israel should not be given a megaphone funded by foreign governments to amplify their voice. That does not strengthen democracy, it undermines it.”
Kallner said that over 1.3 billion shekels have been transferred from European governments to NGOs over the last 13 years.
“Strengthening civil society is important,” he said, “but when politically divisive agendas are amplified with foreign money, the balance is lost. Politics must be kept separate.”
Several opposition MKs criticize the bill, including saying the new proposal was worse
Several opposition MKs criticized the bill. Democrats MK Gilad Kariv argued that the new proposal was worse than the initial one, since “it casts the core activities of political NGOs as illegitimate.”
Kariv also pointed to what he viewed as the government’s hypocrisy in attempting to prevent foreign influence while close aides to the prime minister are under criminal investigation for alleged business ties with Qatar, and while the prime minister receives support during his ongoing personal criminal trial from US Ambassador Mike Huckabee.
“This is a foreign funding tax proposed at a time when a country that hosts senior Hamas officials [Qatar] is funneling millions into the pockets of associates of the prime minister,” Kariv said.
“Prime Minister Benjamin Netanyahu brought in foreign funds that enabled Hamas to the tune of billions, set up an office for Qatari agents in the heart of the executive branch, and actively invited foreign intervention from the American administration in his legal proceedings,” he continued.
“Now, a bill is being introduced as a smokescreen to obscure the continued involvement of foreign governments in Israel,” Kariv said.
Colette Avital, a former Knesset member and the current chairperson of the Center of Organizations of Holocaust Survivors in Israel, warned that the bill could affect funds from foreign governments to Holocaust survivors via the Claims Conference, which secures material compensation for Holocaust survivors worldwide – money that Avital said “the state itself never gave to the survivors.”
“Without it, thousands of survivors would not have received a single penny to this day. If these funds are delegitimized, it would mean the state would have to supply all of them,” she said.
“Is the Foreign Ministry seeking to absolve the German or French governments, which continue to transfer money, of responsibility?” Avital asked.
She said that the wording of the clause must be corrected to ensure that the Claims Conference is not taxed, and Rothman agreed to make the necessary changes.
The committee did not vote on the bill, which is currently being prepared for its first reading in the Knesset plenum. The Knesset will recess for almost three months beginning on Sunday (July 27), and it is unclear if the bill will proceed prior to the recess.