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The municipality of Kiryat Shmona has taken its case to Israel's High Court, requesting an extension of war compensation for businesses dealing with the aftermath of the October 7, 2023 attack. The petition asserts that the state ceased recognizing losses as the city recovered, even as businesses faced ongoing hardships. A November 4 court decision granted the government and other parties until January 4, 2027, to provide a preliminary response.

The red track, which compensates qualifying businesses for proven losses, was set to end on March 1, 2025, with an additional temporary compensation period expiring June 30, 2025. Kiryat Shmona argues that the end of the red track and the temporary compensation arrangements did not mean businesses were fully restored to prewar conditions. The municipality seeks to extend the period for which businesses can claim losses from March 1, 2025, until December 31, 2026, or at a minimum until the end of the ongoing conflict.

In its petition, Kiryat Shmona contends that the authorities set a uniform end date for compensation without considering the unique circumstances of the city. Before the petition was filed, the Tax Authority rejected the municipality's claim, stating that eligibility under the red track depends on the legal conditions of the time, not solely on the government's declaration of an end to the war.

The municipality is requesting the court to consider the specific conditions faced by Kiryat Shmona and to reevaluate the cutoff dates and eligibility during periods of military restrictions.

A key point of contention is the treatment of continued state-funded accommodation. The municipality cites a government decision from January 2025 allowing some evacuees to remain in reception facilities until July 7, 2025, arguing that this undermines the earlier compensation cutoff. The Tax Authority maintains that the permit to return from March 1, 2025, ended the official evacuation period, and that the shutdown condition for red-track compensation is no longer valid.

The municipality also points out that separate formula-based compensation arrangements were extended through June 2025, but rejects the notion that these extensions automatically extended the period for which losses could be compensated.

Economic data provided by the municipality highlight both the scale of the initial damage and the uneven recovery. In July-August 2023, there were 1,242 active businesses in the city, which dropped to 881 in the same months of 2024 and rose to 1,188 in 2025, still 4.3% below the prewar number. However, total turnover increased to NIS 860 million in the same period of 2025, compared to NIS 778 million in 2023 and NIS 589 million in 2024.

The municipality acknowledges the recovery but argues that overall turnover figures do not prove that individual businesses have fully recovered, particularly when considering inflation and the costs of restarting operations.

In addition to extending the compensation period, Kiryat Shmona seeks permission for businesses to supplement or amend their claims for any additional period recognized, even though the filing deadline has passed. The municipality also requests that the authorities publish the full reasoning and factual basis for the disputed policy.

The municipality views this as a challenge to the general compensation policy rather than a request for individual compensation calculations, and would include provisions for the repayment of advances, delays in recovery, and the authorities' role in any overpayments.