As of 2016, taxation in the State of Palestine is subject to the
Oslo Accords
The Oslo Accords are a pair of agreements between Israel and the Palestine Liberation Organization (PLO): the Oslo I Accord, signed in Washington, D.C., in 1993; , notably the
Protocol on Economic Relations
The Protocol on Economic Relations, also called the Paris Protocol, was an agreement between Israel and the PLO, signed on 29 April 1994, and incorporated with minor amendations into the Oslo II Accord of September 1995.
Position in the agreem ...
also called the Paris Protocol, which was signed in 1994 by the
Palestine Liberation Organization
The Palestine Liberation Organization (PLO; ar, منظمة التحرير الفلسطينية, ') is a Palestinian nationalism, Palestinian nationalist political and militant organization founded in 1964 with the initial purpose of establ ...
(PLO) and Israel. The Paris Protocol established a
customs union
A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.GATTArticle 24 s. 8 (a)
Customs unions are established through trade pacts where the participant countries set up ...
, which essentially formalized the existing situation, where the Palestinian economy was merged into the Israeli one. Formally, the
Palestinian Authority
The Palestinian National Authority (PA or PNA; ar, السلطة الوطنية الفلسطينية '), commonly known as the Palestinian Authority and officially the State of Palestine, (PA) is entitled to collect taxes from the Palestinians in the Palestinian territories, but some 75% of PA's total tax revenue was as of 2014 collected by Israel on behalf of the PA and transferred to the PA on a monthly basis. Israel has occasionally withheld the taxes it owes the PA.
Background
Until 1967, the
West Bank
The West Bank ( ar, الضفة الغربية, translit=aḍ-Ḍiffah al-Ġarbiyyah; he, הגדה המערבית, translit=HaGadah HaMaʽaravit, also referred to by some Israelis as ) is a landlocked territory near the coast of the Mediter ...
was subject to the Jordanian system of taxation, while
Gaza to the Egyptian. Neither territory had previously had economic ties with Israel. After Israel occupied these territories, the economic relations with
the former rulers were cut and Israel launched a partial integration of the territories into its own economic structures in the form of an incomplete
customs union
A customs union is generally defined as a type of trade bloc which is composed of a free trade area with a common external tariff.GATTArticle 24 s. 8 (a)
Customs unions are established through trade pacts where the participant countries set up ...
. Israel’s labour market was opened to Palestinian workers, and in 1972 one out of four Palestinian workers had found employment in Israel.
[''The Paris Protocol—Historical classification'']
. Konrad-Adenauer-Stiftung, 2012. Accessed March 2016
Military Order 31 of 27 June 1967 assigned all powers of taxation to an Israeli official appointed by the Area Commander. Israel adopted the Jordanian Income Tax Law of 1964 to levy taxes on Palestinians in the West Bank, while making notable changes to its tax rate intervals, but applied Israeli tax laws to Israeli Jews moving into settlements there. Under the Jordanian system the highest tax rate of 55% started with incomes of 8,000
dinars
The dinar () is the principal currency unit in several countries near the Mediterranean Sea, and its historical use is even more widespread.
The modern dinar's historical antecedents are the gold dinar and the silver dirham, the main coin of ...
. The Israeli military authorities altered the rates so that by 1988 this applied to Palestinians earning 5,231 JD (equal to 24,064
Israeli shekels, whereas in Israel the 48% rate only applied to Israeli wage earners earning nearly double that amount (45,600 shekels). This discrimination did not affect Israeli West Bank settlers, who were allowed to be taxed at the lower rates operant in Israel. Similarly the self-employed West Bankers appeared to pay more than their Israeli counterparts, but due to the different deductibility regimes, clearer conclusions about discriminations could not be ascertained.
Access to most public services in areas under Israeli control is conditional on proof one is not in arrears with paying one's taxes, income, property and value-added (VAT) and fines, to the military administration. The bureaucratic process is cumbersome and arbitrary. This system was legalized in the West Bank retroactively under two military order No. 1262 (17 December 1988). Israel's taxation allows broad leeway and discretion, taking in norms of appeal and the taxpayer's rights. The draconian provisions of Section 194 of the Israeli Income Tax Ordinance, allowing taxation officers to assess what a taxpayer may owe while limiting challenges, and making them conditional on the prior payment of a bond, rarely applied in Israel, has been routine in the West Bank. Likewise, imprisonment for tax offenses is uncommon in Israel but, according to Lazar, "in the territories it is used on a massive scale and for extensive periods of time." Palestinians deeply resented paying taxes on their business and commercial activities to the Occupation authority without receiving the same benefits Israeli taxpayers had in return. In the
First Intifada
The First Intifada, or First Palestinian Intifada (also known simply as the intifada or intifadah),The word ''intifada'' () is an Arabic word meaning "uprising". Its strict Arabic transliteration is '. was a sustained series of Palestinian ...
, tax payments dropped 50%, and Israel responded by cutting health benefits.
The relatively affluent entrepreneurial Christian town of
Beit Sahour
Beit Sahour or Beit Sahur ( ar, بيت ساحور pronounced ; Palestine grid 170/123) is a State of Palestine, Palestinian town east of Bethlehem, in the Bethlehem Governorate of the State of Palestine. The city is under the administration of the ...
, in response to military repression organized a
sumud-inspired non-violent boycott of Israeli consumer products in favour of Palestinian-Jordanian wares, and shortly afterwards refused to pay taxes to the occupying power on the basis of the slogan "No taxation under Occupation" and the principle of the
American colonial revolt against their British masters, namely
No taxation without representation
"No taxation without representation" is a political slogan that originated in the American Revolution, and which expressed one of the primary grievances of the American colonists for Great Britain. In short, many colonists believed that as they ...
. They protested paying school taxes because under Israeli occupation as opposed to Jordanian rule they now had to pay for their education, and claimed tax monies received were not used to provide services but to cover the costs of IDF ammunition and tear gas fired at their children. There was even a tax on stones thrown. As a result, the IDF placed the town under total curfew for 42 days, blocking food imports, cutting telephone lines, impounding private cars, arresting over forty community leaders, who received year-long gaol sentences, and confiscating cash and property found in house raids amounting to millions of dollars, and one period seizing $US 1,500,000 worth of goods from 300 families, including living room furniture, fridges and stereos which were then sold in Israel at auctions. Closures of schools, medical clinics and food supply chains continued for months after the curfew was lifted. The revolt was crushed in nine months.
Paris Protocol
In 1994, the PLO and Israel signed the
Gaza–Jericho Agreement
The Gaza–Jericho Agreement, officially called Agreement on the Gaza Strip and the Jericho Area, was a follow-up treaty to the Oslo I Accord in which details of Palestinian autonomy were concluded. The agreement is commonly known as the 1994 Cairo ...
and the annexed
Protocol on Economic Relations
The Protocol on Economic Relations, also called the Paris Protocol, was an agreement between Israel and the PLO, signed on 29 April 1994, and incorporated with minor amendations into the Oslo II Accord of September 1995.
Position in the agreem ...
(Paris Protocol), which created the Palestinian Authority, and established a customs union and the tax clearance system of the PA.
Taxes in PA areas
The PA imposes and collects taxes in the
Areas A and B of the West Bank, but not in Area C, and in the Gaza Strip. In 2006, the PA directly collected in the West Bank Areas A and B approximately $35 million per month from taxes and other charges.
Under the Paris Protocol, the PA has no jurisdiction in Area C of the West Bank. Income taxes paid by settlers and Israeli soldiers living in West Bank Area C flow directly into the Israeli treasury. Institutions and businesses in the settlements are entitled to tax benefits, and pay taxes, including corporate taxes and water taxes, to the municipalities. Income taxes of Palestinian workers in the settlements are collected by Israel and remitted to the PA without any deductions.
Tax clearance
Under the tax clearance system, Israel collects taxes on behalf of the PA. It is the largest source of income of the PA, accounting for about 70-75% of the PA's total revenue. The taxes collected by Israel on behalf of the PA are:
*
tariff
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and poli ...
s on Palestinian imports. In August 2012, Israel and the PA reached an agreement to tighten cooperation in an effort to increase Palestinian revenue and curb the black market trade between Israel and the Palestinian territories.
[''The Israeli-Palestinian trade agreement – analysis'']
Yoav Stern, Britain Israel Communications & Research Centre (BICOM), 14 August 2012 Under the agreement, import taxes are calculated on the basis of actual transfers of goods at Israeli border crossings, replacing the previous practice of calculating such taxes on the basis of a declaration by importers that goods were intended for the Palestinian territories.
[ Israel may unilaterally establish and change tariff rates.]
* Israel collects a value added tax
A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end ...
(VAT) on goods and services sold in Israel. Israel remits to the PA that portion of the VAT on goods actually transferred to the Palestinian territories.[''Backgrounder: the Shrinking PA Budget'']
Esther Pan, Council on Foreign Relations, 21 April 2006 The Protocol requires the PA to vary its VAT rate to match Israel’s VAT rate.
* Israel collects income taxes as well as some insurance fees deducted from the wages of Palestinians employed in Israel and the Israeli settlement
Israeli settlements, or Israeli colonies, are civilian communities inhabited by Israeli citizens, overwhelmingly of Jewish ethnicity, built on lands occupied by Israel in the 1967 Six-Day War. The international community considers Israeli se ...
s.[''Israel’s retaliatory seizure of tax'']
pp. 10–11. Al-Haq, 1 April 2015
Here available
/ref> Pursuant to the Protocol, Israel retains 25% of the income taxes on wages earned by Palestinians in Israel, but not from Palestinians employed in the settlements, and the balance is remitted to the PA.
Israel may retain 3% of the total revenue collected by it as collection and processing fees.[''Report on UNCTAD assistance to the Palestinian people: Developments in the economy of the Occupied Palestinian Territory''](_blank)
para 9–24. United Nations Conference on Trade and Development, 6 July 2015 (doc.nr. TD/B/62/3)
Source
/ref> Taxes collected by Israel are transferred to the PA on a monthly basis.
In 2006, Israel collected about $50 million of PA taxes per month. In December 2012, the amount was put at some $100 million a month.[''Israel to withhold Palestinian funds until March''](_blank)
Reuters, 12 December 2012[''Palestinian PM calls for boycott of Israeli goods'']
AP, 16 December 2012 In 2014–2015, the amount was about $160 million per month. The PA's self-generated revenue collected by Israel was about 70–75% of the PA’s total revenue.
Withholding transfers by Israel
Because of the large proportion of taxes in the PA's budget collected by Israel, the PA is vulnerable to unilateral suspensions by Israel of transfers of clearance revenue. As early as 1997, Israel began to unilaterally settle bills unpaid by Palestinians, not the PA itself, including fines and interest. Political reasons for suspension varied from Palestinian violence to the election of Hamas into PA, reconciliation between Fatah and Hamas and the demand for international recognition.[ Israel has suspended hundreds of millions of dollars for accumulated periods of some 4 years. While ]Israel Electric Corporation
Israel Electric Corporation ( he, חברת החשמל לישראל, abbreviation: IEC) is the largest supplier of electrical power in Israel and the Palestinian territories. The IEC builds, maintains, and operates power generation stations, sub- ...
unilaterally issues excessive late payment penalties and interest charges, Israel did not pay interest on money it did not transfer to the PA.[
In July 2018, the PA Finance Ministry said that Israel was deducting NIS 120 million (about US$30 million) each month to cover the costs of ]electricity
Electricity is the set of physical phenomena associated with the presence and motion of matter that has a property of electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as described ...
and water that Israel supplies to the Palestinian territories, in addition to medical treatment Palestinians receive in Israeli hospitals. Israel was also proposing to withhold the amount that the PA pays to security prisoners and their families, which total NIS 100 million a month.[ In June 2019, the PA stopped all payments to ]Israel Electric Corporation
Israel Electric Corporation ( he, חברת החשמל לישראל, abbreviation: IEC) is the largest supplier of electrical power in Israel and the Palestinian territories. The IEC builds, maintains, and operates power generation stations, sub- ...
(IEC), when its debts stood to IEC at ILS 2.0 billion (about US$540 million). In August, with PA agreement, ILS 300 million was deducted from taxes that had been withheld by Israel for the PA and applied against the PA debt to IEC. On 8 September, the debt was ILS 1.7 billion (about US$460 million) and IEC gave notice of its intention to cut power. Two months earlier the Supreme Court of Israel
The Supreme Court (, ''Beit HaMishpat HaElyon''; ar, المحكمة العليا) is the Supreme court, highest court in Israel. It has ultimate appellate jurisdiction over all other courts, and in some cases original jurisdiction.
The Supreme C ...
ruled that IEC must give 35 days notice before it can cut off electricity.
Israel has suspended transfers of Palestinian taxes on a number of occasions, including:
*1997: transfers suspended for two months after a bombing in Jerusalem.[
*2000: transfers suspended for two years after the start of the ]Second Intifada
The Second Intifada ( ar, الانتفاضة الثانية, ; he, האינתיפאדה השנייה, ), also known as the Al-Aqsa Intifada ( ar, انتفاضة الأقصى, label=none, '), was a major Palestinian uprising against Israel. ...
.[
*2006: transfers suspended for more than a year following the ]2006 Palestinian legislative election
Legislative elections were held in the Palestinian territories on 25 January 2006 in order to elect the second Palestinian Legislative Council (PLC), the legislature of the Palestinian National Authority (PNA). The result was a victory for Hamas ...
that brought Hamas to power in the PA.[
* June 2008: Israel retained a large part of the taxes in an apparent retaliation for PA Prime Minister ]Salam Fayyad
Salam Fayyad ( ar, سلام فياض, ; born 1951 or 12 April 1952) is a Jordanian-Palestinian politician and former Prime Minister of the Palestinian Authority and Finance Minister.
He was Finance Minister from June 2002 to November 2005 and ...
's lobbying at the European Union not to upgrade the Israel–European Union relations
Israel is an associated state of the European Union. The relations between the two are framed in the European Neighbourhood Policy (ENP), the Euro-Mediterranean Partnership, and the Union for the Mediterranean.
The main legal ties between Israel ...
.[''Israel withholds Palestinian tax money amid EU row'']
Adam Entous, Reuters, 4 June 2008
Donald Macintyre, The Independent, 7 June 2008
* May 2011: transfers suspended after the Fatah–Hamas reconciliation agreement.
* October and November 2011: transfers suspended following Palestine's bid for full membership in the United Nations and admission to UNESCO
The United Nations Educational, Scientific and Cultural Organization is a specialized agency of the United Nations (UN) aimed at promoting world peace and security through international cooperation in education, arts, sciences and culture. It ...
.
* December 2012: transfers of $100 million suspended in response to Palestine securing an upgraded status in the UN pursuant to United Nations General Assembly resolution 67/19
United Nations General Assembly resolution 67/19 is a resolution upgrading Palestine to non-member observer state status in the United Nations General Assembly.UNGA, 29 November 2012''Resolution 67/19. Status of Palestine in the United Nation ...
.[ Foreign Minister ]Avigdor Lieberman
Avigdor Lieberman (, ; russian: Эве́т Льво́вич Ли́берман, Evet Lvovich Liberman, ; born 5 June 1958) is a Soviet-born Israeli politician serving as Minister of Finance since 2021, having previously served twice as Deputy ...
said that "The Palestinians can forget about getting even one cent in the coming four months". The withheld money were used to pay Palestinian debts to the Israel Electric Corporation
Israel Electric Corporation ( he, חברת החשמל לישראל, abbreviation: IEC) is the largest supplier of electrical power in Israel and the Palestinian territories. The IEC builds, maintains, and operates power generation stations, sub- ...
and to the Israeli water authority (Mekorot
Mekorot ( he, מקורות, lit. "Sources") is the national water company of Israel and the country's top agency for water management. Founded in 1937, it supplies Israel with 90% of its drinking water and operates a cross-country water supply ne ...
). The Foreign Affairs Council
The Foreign Affairs Council (FAC) is a configuration of the Council of the European Union that convenes once a month. Meetings bring together the foreign ministers of the member states. Ministers responsible for European affairs, defence, developm ...
of the Council of the European Union
The Council of the European Union, often referred to in the treaties and other official documents simply as the Council, and informally known as the Council of Ministers, is the third of the seven Institutions of the European Union (EU) as ...
released a statement calling on Israel to "avoid any step undermining the financial situation of the Palestinian Authority" and stating that "Contractual obligations, notably under the [Protocol on Economic Relations
The Protocol on Economic Relations, also called the Paris Protocol, was an agreement between Israel and the PLO, signed on 29 April 1994, and incorporated with minor amendations into the Oslo II Accord of September 1995.
Position in the agreem ...
], regarding full, timely, predictable and transparent transfer of tax and custom revenues have to be respected." On 9 December 2012, Mahmud Abbas warned he may refer Israel to the International Criminal Court
The International Criminal Court (ICC or ICCt) is an intergovernmental organization and international tribunal seated in The Hague, Netherlands. It is the first and only permanent international court with jurisdiction to prosecute individuals ...
(ICC) if it continues to withhold tax revenues at a meeting of the Arab League
The Arab League ( ar, الجامعة العربية, ' ), formally the League of Arab States ( ar, جامعة الدول العربية, '), is a regional organization in the Arab world, which is located in Northern Africa, Western Africa, E ...
at which other members agreed to make up the shortfall in revenues.
* April 2014: Israel deducted an amount for debts owed by Palestinians to Israeli companies following the April 2014 Gaza Agreement.
* December 2015 — April 2015: transfers suspended after Palestine submitted a declaration accepting the jurisdiction of the International Criminal Court
The International Criminal Court (ICC or ICCt) is an intergovernmental organization and international tribunal seated in The Hague, Netherlands. It is the first and only permanent international court with jurisdiction to prosecute individuals ...
over crimes committed in the Palestinian territories and acceded to the Rome Statute
The Rome Statute of the International Criminal Court is the treaty that established the International Criminal Court (ICC). It was adopted at a diplomatic conference in Rome, Italy on 17 July 1998Michael P. Scharf (August 1998)''Results of the R ...
to become a states party to the Statute.[''Israel to Transfer PA Tax Funds'']
IMEMC, 19 April 2015
* February 2019: Israel implemented a law of July 2018 requiring the deduction and freezing of a sum equal to the amount paid by the PA in 2018 to the Palestinian Authority Martyrs Fund
The Palestinian Authority Martyrs Fund is a fund operated by the Palestinian Authority (PA) which pays monthly cash stipends to the families of Palestinians killed, injured, or imprisoned while carrying out politically motivated violence against ...
to pay Palestinians detained in Israel (including prisoners convicted of bombing and murder) as well as to their families and to released prisoners. ILS 500 million (about US$138 million) was frozen.
* August 2019: with PA agreement, ILS 300 million was deducted from taxes that had been withheld by Israel and applied against the PA debt to IEC, which reached ILS 2.0 billion (about US$540 million) in June 2019.
* May 2020: the PA refused to receive its tax revenues from Israel as part of its decision to suspend coordination with Israel in protest after an Israeli announcement of intention to annex large areas in the West Bank. The annexation plans were put on hold in August and, in December, the PA accepted the transfer of ILS 3.76 billion (US$1.14 billion), being all the due tax revenues.Israel transfers over $1 billion in tax revenues to Palestinians
/ref>
Notes
Citations
Sources
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See also
{{Economy of Palestine, state=expanded