Israelis Rush to Dump Shares to Beat New Tax : Stocks: A selling stampede anticipates capital-gains levy. Later, the plan is modified.

Israel’s stock market plunged nearly 10% in trading Sunday, when investors seeking to beat a tax on share profits stampeded to sell.

Ninety minutes into what many predicted would be the Tel Aviv Stock Exchange’s (TASE) “Black Sunday,” the government backtracked. It modified the pending capital-gains tax so profits can be offset against losses.

“I hope that within several days we will stabilize at a reasonable level that reflects the operations and quality of the listed companies,” Finance Minister Avraham Shohat said.

Sellers flooded the market, which had been closed since Shohat announced the 10% tax on Wednesday. TASE officials said record sell orders of $660 million were lodged before trading started.

The benchmark Mishtanim index fell 18.22 points, or 9.93%, to 165.18.

“I cannot recall a day like this in years,” said Yerah Nissan of United Mizrahi Bank on the tumultuous trading floor of the TASE.

For the first time in its 40-year history, TASE lifted a 10% limit on the fluctuation of share prices within a single day. Losses on individual share prices ranged between 10% and 20%.

Israel is stock market-mad, even by the standards of industrialized Western countries. Even before Sunday, a bull market that had risen since the mid-1980s had fallen about 25% this year.

Tens of thousands of small investors dabble in stocks. The market trades fewer than 100 major shares yet supports hundreds of small portfolio managers, institutional investors and bank operations.

Outside the TASE building, disgruntled investors and flag-waving opposition politicians called for Prime Minister Yitzhak Rabin’s resignation. He had pledged there would be no capital-gains tax on the market this year.

But Shohat said he had no regrets about his announcement last week that he would kill the cash cow by taxing share profits 10%.

“I could have sat quietly in my office without making any fuss and perpetuated a situation where there was a 50% tax on labor in Israel, but share trading was tax free,” he told Army Radio.

In a Tel Aviv bank branch, investors gathered to watch their holdings plummeting on a monitor.

“If it goes on like this for another 15 minutes, Rabin should resign,” said Zvi, an old man who has played the market for 30 years.

Under the revised tax proposal, investors can choose two options when buying stock. They could pay a flat 10% tax on any profits or take losses as tax deductions, subjecting any profits they made on the market to a 20% to 25% tax.