Kiryat Shmona Municipality has petitioned the High Court of Justice to extend the period covered by war compensation for local businesses, arguing that the state stopped recognizing their losses while the city was still struggling to recover from evacuation.
In a November 4 decision, Justice Ruth Ronnen ordered the government and the other respondents to submit a preliminary response by January 4, 2027. The decision did not rule on the municipality’s claims or grant compensation.
The petition challenges the end of eligibility under the “red track,” which compensates qualifying border-community businesses for proven losses, from March 1, 2025, and the June 30, 2025 cutoff for additional temporary compensation arrangements.
The municipality argues that allowing residents to return did not restore the customers, workers, and income businesses depended on. It is also seeking a special arrangement to repay compensation advances that businesses had already spent on wages, suppliers, and recovery.
Kiryat Shmona demands extended war compensation as local businesses struggle
Before the petition was filed, the Tax Authority rejected the municipality’s demand. In a letter dated September 24, Amir Dahan, director of the Tax Authority’s Compensation Fund, said eligibility under the red track depended on the applicable legal conditions – including a shutdown caused by military restrictions – rather than whether the government had formally declared the war over.
The municipality is asking the court to require recognition of losses from October 7, 2023 until the government announces an end to the fighting, and at least through December 31, 2026. Alternatively, it seeks a fresh examination of the cutoff dates and of eligibility during later periods of military restrictions.
Its central argument is that the authorities set a uniform end date without adequately examining conditions in Kiryat Shmona. Businesses reopening after prolonged evacuation faced dispersed customers, employees who had found work elsewhere and renewed expenses before their income recovered, the petition says.
The city also argues that the authorities failed to examine whether losses resulting from physical war damage could qualify separately from losses caused by restrictions on business activity.
A particular dispute concerns continued state-funded accommodation. The municipality cites a January 2025 government decision allowing certain evacuees to remain in reception facilities until July 7, 2025, arguing that this undermines the earlier compensation cutoff.
Dahan’s response draws a distinction: continued hotel assistance did not extend the official evacuation period. He said residents were permitted to return from March 1 and that the shutdown condition for red-track compensation was no longer met.
The letter also notes that separate, formula-based compensation arrangements were extended through June 2025 to give evacuated communities time to resume activity. It rejects the argument that later extensions of the deadline to submit claims also extended the period for which losses could be compensated.
Economic data cited by the municipality show both the scale of the initial damage and an uneven recovery.
A January 2026 Knesset Research and Information Center report recorded 1,242 active businesses in July-August 2023, falling to 881 in the same months of 2024 and recovering to 1,188 in 2025 – still 4.3% below the prewar number.
Total turnover, however, rose to NIS 860 million in July-August 2025, compared with NIS 778m. in 2023 and NIS 589m. in 2024. The report cautioned that citywide totals could mask deeper losses among small businesses and excluded VAT-exempt businesses from those figures.
The municipality acknowledges the rebound but argues that aggregate turnover does not establish that individual businesses have recovered, particularly after inflation and the costs of restarting operations.
Alongside extending the compensation period, the city seeks permission for businesses to supplement or amend claims for any additional period recognized, despite the filing deadline having passed. It also wants the authorities to publish the full reasoning and factual basis for the disputed policy.
The municipality stresses that it is challenging the general policy rather than asking the court to calculate compensation for individual businesses. Its requested repayment arrangement would account for reliance on advances, delays in recovery demands, and the authorities’ own role in any overpayments.
