PA rejects tax funds deducted by Israel

The Palestinian Authority refused Israel’s transfer of deducted tax revenue funds in a bid to recover parts it had earmarked for Palestinian prisoners and families of victims in confrontation with Israel.

al-monitor Palestinian Hamas-hired civil servants wait to receive their salaries paid by Qatar as a banner showing a picture of Qatar's Sheikh Tamim bin Hamad Al Thani is seen, in Khan Yunis, southern Gaza Strip, Dec. 7, 2018.  Photo by REUTERS/Ibraheem Abu Mustafa.

May 23, 2019

The Palestinian Authority (PA) once again refused to accept the monthly transfer of tax revenues from Israel on May 2, after Israel deducted the portion earmarked for Palestinian prisoners and families of those killed in resistance activities before depositing the remainder in Palestinian banks in the West Bank.

This is the third month the PA has refused to receive the partial delivery of customs duties on goods imported into Palestine and collected by Israel on its behalf. These funds represent the largest part of Palestinian public revenues at around 700 million shekels ($196 million), after the deduction.

On Feb. 17, Israel began deducting $138 million a year from the tax revenues it collects for the PA in the name of blocking terror funding. In the implementation of the so-called pay-for-slay law passed in July 2018, Israel started in March withholding from the tax revenues it transfers to the PA funds equal to the amount allocated by the PA to Palestinian prisoners and families of Palestinians killed in confrontations with Israel. The law labeled these funds as “salaries” for terrorists.

Under the Paris Economic Agreement signed in April 1994, Israel collects Palestinian tax revenues on goods entering the Palestinian territories through the crossings and ports controlled by Israel. These tax revenues are returned to the PA on a monthly basis.

The spokesman for the Palestinian government in the West Bank, Ibrahim Melhem, told Al-Monitor, “Israel withholds 40 million shekels [around $11 million] monthly from the Palestinian funds, which amounts to about 800 million shekels [around $220 million] per month, in violation of the Paris Economic Agreement.”

He added, “No contacts were made between the PA and Israel to discuss the matter. Some international mediators have been trying to persuade the PA to accept the transfer and negotiate on the deducted part. The PA rejected this suggestion outright.”

Melhem went on, “The complete tax revenues are a legitimate right of the Palestinian people according to the Oslo Agreement and the Paris Economic Protocol. What Israel is doing is robbery denounced by the PA and not subject to negotiation. Israel must pay the complete funds.”

He noted that the PA has approached several heads of powerful nations such as the United States and France to brief them on Israel’s confiscation of its tax revenues, pointing to international pressure exerted on Israel to renege on its decision to cut these funds.

In February and April, the European Union and France denounced Israel’s breach of the agreements signed with the Palestinians, urging it to return the deducted funds. Israel insisted on the legitimacy of its position.

The PA banned medical transfers of Palestinians to Israeli hospitals earlier this year in response to the deduction of the tax revenue funds. PA spokesman Osama Najjar told al-Itihad newspaper in April that the bill of Palestinian medical transfers to Israeli hospitals amounted to about $10 million a month.

“The PA observes all agreements with Israel. Stopping medical transfers is part of the Palestinian vision of strategic disengagement from Israel,” argued Melhem.

Palestinian economic expert and former economic adviser to the PA Samir al-Durqan told Al-Monitor that Israel was eager to assume the task of collecting the Palestinian tax revenue funds under the Paris Economic Agreement “This allowed it to keep a trump card to pressure the PA into accepting any political decision in its favor,” Durqan said.

He continued, “Israel had withheld tax revenue funds more than once on various pretexts since the signature of the Paris Agreement. But it always returned the funds and backtracked on its decision. This time, it is the PA that is refusing to accept the transfer of the deducted funds. The effects of this decision are not only economic but also political.”

Durqan argued that without the tax revenues, the PA will not be able to pay the salaries of its employees and meet its governmental obligations. Former Prime Minister Rami Hamdallah affirmed as much via media statements in February.

“The PA’s rejection of the deducted clearing funds forced it to borrow from local banks to fill its financial deficit. It borrowed 250,000,000 shekels [around $69 million] from local banks in March.”

Deputy Minister of Finance Farid Ghannam told Al-Monitor that the Finance Ministry developed a financial emergency plan through the end of July to manage the crisis that includes borrowing $350 million from local banks.

“According to the Paris Economic Agreement, the PA may reconsider and amend the agreement every six months,” said Durqan, adding, “Unfortunately, this did not materialize; otherwise, the PA would not have been exposed to flagrant embezzlement of its funds on the pretext that it is paying salaries of terrorists.”

Political analyst Mowaffaq Matar told Al-Monitor, “The PA’s refusal to accept the partial tax revenue funds is tantamount to a rejection of the Israeli classification as terrorists of Palestinian prisoners and victims.”

He argued, “The PA had agreed every time to receive the funds after deduction of water and electricity taxes and theft of income tax revenues paid by Palestinians workers in Israeli settlements. It negotiated these deductions after receiving the tax revenue transfer. But this time the deduction of share allocated to Palestinian prisoners and families of victims is not limited to economic objectives. The PA was right in refusing the transfer of partial funds.”

The PA sees that its refusal to receive the partial funds is the best option to force Israel to backtrack on its decision, especially since this decision is not only economic. The PA considers it a political decision that affects the resistance against the occupation — a resistance that Israel considers terrorism.

Criticizing Israel for violating bilateral agreements, Matar noted that the PA is honoring all laws, agreements and treaties made under international auspices. “The PA sees in international law an umbrella of protection of the Palestinian cause. Its acceptance of the partial funds would mean that it is condoning and aiding Israel’s infringement of international law. It would also mean classifying the noble struggle against Israel as terrorism.”

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