NOTE 17:-

INCOME TAXES

Israeli Corporate Income Tax Rates

Corporate tax rates in Israel were 25% in 2010, 24% in 2011and 25% in 2012.

In December 2011 the Knesset passed the Law for the Tax Burden Reform (Amended Legislation) - 2011 ("the Tax Burden Reform"), which came into effect on January 1, 2012. Pursuant to the Tax Burden Reform, the corporate tax rate is scheduled to remain at a rate of 25% for future tax years. In view of this increase in the corporate tax rate to 25% in 2012, the real capital gains tax rate and the real betterment tax rate were also increased accordingly.

The net effect of the Tax Burden Reform on the deferred tax balances of the Company was recognized in the period of enactment (fourth quarter of 2011). The implementation of the Tax Burden Reform by the Company increased deferred tax liabilities by approximately $ 1,174. The adjustment of the deferred tax balances resulted in a decrease in net income in 2011 of approximately $ 1,174, which was recorded in taxes on income and a decrease in the net profit approximately $ 1,174.

Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:

The Company is an "industrial company", as defined by the Law for the Encouragement of Industry (Taxes), 1969, and, as such, is entitled to certain tax benefits, mainly accelerated depreciation of machinery and equipment, as prescribed by regulations published under the Income Tax Law (Inflationary Adjustments), 1985, the right to claim public issuance expenses in three annual installments and an annual deduction of 12.5% of patents and other intangible property rights as deductions for tax purposes.

The Law for the Encouragement of Capital Investments, 1959 ("the Law"):

Under the Law, companies are entitled to various tax benefits by virtue of the "approved enterprise" and/or "beneficiary enterprise" status granted to part of their enterprises, as determined by the Law ("the Alternative Track"). The tax benefits and reduced tax rates consist of a tax exemption in the first two years and a reduced rate of 25% for a period of five years for the remaining benefit period.

The income qualifying for tax benefits under the Alternative Track is the taxable income of a company ("a beneficiary company") that has met certain conditions as determined by the Law, and which is derived from an industrial enterprise. The Law specifies the types of income that qualify for the tax benefits under the Alternative Track in respect of an industrial enterprise, Income from an industrial enterprise includes, among others, revenues from the production and development of software products and revenues from industrial research and development activities performed for a foreign resident (and approved by the Head of the Administration of Industrial Research and Development).

The Company's program for expansion of its plant was granted the status of an "approved program", in accordance with the Law, under the alternative track. According to this track, income derived from the approved enterprise is subject to the benefits and related conditions, as above.

The benefit period starts with the first year the approved enterprise/beneficiary enterprise earns taxable income, provided that 14 years have not passed since the approval was granted and 12 years have not passed since the enterprise began operating. In respect of expansion programs pursuant to Amendment No. 60 to the Law, the benefit period starts at the later of the year elected and the first year the Company earns taxable income provided that 12 years have not passed since the beginning of the year of election. The Company's benefit period for the approved enterprise status ended in 2010.

If dividends are distributed out of the tax exempt profits, mentioned above, the Company will become liable for tax at the rate applicable to its profits from the approved enterprise in the year in which the income was earned, as if it was not on the Alternative Track (tax at the rate of 0%). The Company's policy is not to distribute dividends as above.

In December 2010, the "Knesset" (Israeli Parliament) passed the Law for Economic Policy for 2011 and 2012 (Amended Legislation), 2011, which prescribes, among others, amendments in the Law for the Encouragement of Capital Investments, 1959 ("the Law"). The amendment became effective as of January 1, 2011. According to the amendment, the benefit tracks in the Law were modified and a flat tax rate applies to the Company's entire preferred income. The Company will be able to opt to apply (the waiver is non-recourse) the amendment and from then on it will be subject to the amended tax rates that are as follows: 2011 and 2012 - 15% (in development area A - 10%), 2013 and 2014 - 12.5% (in development area A - 7%) and in 2015 and thereafter - 12% (in development area A - 6%).

Income (loss) before taxes on income:

	Year ended December 31,
	2012			2011			2010

Domestic	$	4,145		$	(2,556	)	$	6,681
Foreign		(690	)		(1,913	)		(2,041	)

	$	3,455		$	(4,469	)	$	4,640

Deferred taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and amounts used for income tax purposes. Significant components of the deferred tax liabilities and assets of the Company and its subsidiaries are as follows:

Provided in respect of the following:

	December 31,
	2012			2011

Reserves and accruals	$	615		$	544
Carryforward tax losses		26,928			27,089
Other temporary differences		1,620			1,821

Total deferred tax assets before valuation allowance	$	29,163		$	29,454

Valuation allowance (3)		(26,095	)		(26,786	)

Net deferred tax assets	$	3,068		$	2,668

Goodwill		(6,244	)		(4,906	)
Other temporary differences		(227	)		(233	)

Total deferred tax liabilities	$	(6,471	)	$	(5,139	)

Total deferred tax assets (Liabilities)	$	(3,405	)	$	(2,471	)

Domestic	$	(3,405	)	$	(2,471	)
Foreign		-			-

	$	(3,405	)	$	(2,471	)

Deferred taxes are included in the consolidated balance sheets, as follows:

	December 31,
	2012			2011

Long-term Liabilities	$	(3,405	)	$	(2,471	)

	$	(3,405	)	$	(2,471	)

The Company and its subsidiaries (except Shagrir) have provided valuation allowances in respect of deferred tax assets resulting from tax losses carryforward and other temporary differences. Since the Company and its subsidiaries (except for Shagrir) have a history of losses, it is more likely than not that the deferred taxes regarding the losses carryforward and other temporary differences will not be realized in the foreseeable future.

Reconciling items between the statutory tax rate of the Company and the effective tax rate:

	Year ended December 31,
	2012			2011			2010

Income (loss) before taxes, as reported in the consolidated statements of operations	$	3,455		$	(4,469	)	$	4,640

Statutory tax rate		25	%		24	%		25	%

Theoretical tax expenses on the above amount at the Israeli statutory tax rate	$	864		$	(1,072	)	$	1,160
Tax adjustment in respect of different tax rates in subsidiaries and changes in tax rates		34			1,064			(83	)
Operating carryforward losses for which a valuation allowance was provided		302			2,219			576
Realization of carryforward tax losses for which a valuation allowance was provided and change in valuation allowance in respect of deferred taxes		(501	)		-			(78	)
Nondeductible expenses and other permanent differences		160			172			(51	)

	$	861		$	2,383		$	1,524

Carryforward tax losses and deductions:

Carryforward tax losses of the Company totaled approximately $ 83,000 (including a capital loss in the amount of approximately $ 32,234) as of December 31, 2012. The carryforward tax losses have no expiration date.

Carryforward tax losses of Pointer Argentina are approximately $ 1,102 as of December 31, 2012. The carryforward tax losses will expire from 2014 to 2016.

Carryforward tax losses of Shagrir totaled approximately $ 14,608 as of December 31, 2012. The carryforward tax losses have no expiration date.

Carryforward tax losses of Pointer Mexico totaled approximately $ 7,694 as of December 31, 2012. The carryforward tax losses will expire from 2014 to 2022.

Final tax assessments:

Tax assessments for the Company and Shagrir are considered final as of the 2008 tax year.

Tax assessments for Pointer Mexico are considered final as of the 2007 tax year.

Tax assessments for Pointer Argentina are considered final as of the 2009 tax year.

Taxes on income (tax benefit) included in the consolidated statements of operations:

	Year ended December 31,
	2012		2011		2010

Current	$	14	$	5	$	(61	)
Deferred		847		2,378		1,585

	$	861	$	2,383	$	1,524

Domestic	$	847	$	2,378	$	1,585
Foreign		14		5		(61	)

	$	861	$	2,383	$	1,524