Palestinian Authority losing millions annually due to Israeli restrictions

The Palestinian Authority loses $350 million every year due to Israel’s violations of various agreements. It’s time to pay up.

By Sam Bahour

Palestinians cross the Bethlehem checkpoint as they head to Al-Aqsa Mosque compound in Jerusalem's Old City to attend the third Friday prayers of Ramadan on June 1, 2018. (Wisam Hashlamoun/Flash90)
Palestinians cross the Bethlehem checkpoint as they head to Al-Aqsa Mosque compound in Jerusalem’s Old City to attend the third Friday prayers of Ramadan on June 1, 2018. (Wisam Hashlamoun/Flash90)

The Palestinian government loses around $350 million a year due to Israel’s restrictions and violations of signed agreements, according to a recent report published by the Palestinian Authority. The estimated sum amounts to almost 30 percent of Palestine’s expected budget deficit in 2018.

That means taxpayers around the world are footing the bill for Israel’s wrongdoings. Now it’s time for Israel to pay up.

The latest report, titled Stopping Fiscal Leakages, was submitted in September to the Ad Hoc Liaison Committee (AHLC), a 15-member group chaired by Norway and co-sponsored by the European Union and United States, which serves as the principal policy-level coordination mechanism for development assistance to the Palestinian people. Without their foreign donor support, there would be no Palestinian government as we know it.

The report is the equivalent to a summons for Israel to pay up for the fiscal damage it is causing the Palestinians. Here is a peek into the $350 million annual losses:

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Leakages resulting from lack of control over West Bank land

Based on signed agreements, Israel is authorized to levy and collect Value-Added Tax (VAT) and income tax, as well as deduct Israeli businesses’ income accrued or derived in what is known as Area C — the roughly 60-percent area of the West Bank that is under full Israeli control. The report estimates that around 2,000 Israeli businesses and individuals currently operate in and derive income from Area C. Since the year 2000, Israel ceased all tax transfers and stopped informing the PA about Israeli commercial activities in Area C, which have accumulated to around $360 million.

Leakages resulting from fees on fuel purchases

Since 1994, Palestine has imported fuel through Israeli companies. According to the report, between 1994 and 1996, the Israeli government transferred the excise tax for fuel purchases to the PA. Given the lack of administrative work involved, it did not deduct a handling fee. However, since 1996, Israel has been imposing an additional 3 percent handling fee. The report estimates that the PA is currently losing around $26 million each year as a result.

Leakages resulting from indirect imports

Israel does not permit Palestinians to have a direct connection to the outside world. Therefore, they are forced to use Israeli ports to import goods and equipment. Israel is obliged to transfer all import taxes and other levies it collects on goods that are directly imported from Palestine or end up in an area under Palestinian jurisdiction.

However, according to the report, a significant amount of the goods entering Palestinian markets from Israel are goods that were originally imported to Israel by Israeli importers, with the intention of later selling them in Palestine. As a result, Israel receives the import taxes on these imports even though they are to be sold in the Palestinian market. The report estimates that this Israeli practice annually costs the PA around $30 million in customs duties.

Leakages resulting from Passenger Exit Taxes

According to signed arrangements which determine movement across borders for Palestinians, Israel is entitled to collect a $26 exit fee from each passenger leaving the PA’s territory, while the PA is entitled to $12 for each of the first 750,000 passengers and $16 for each passenger thereafter. According to the report, Israel’s transfer of the fees owed to the PA has been irregular and partial, resulting in an accumulated loss of about $145 million since 2008. Meanwhile, Israel has unilaterally raised the passenger exit fees to $43.

Leakages due to faulty VAT Clearance Mechanism

Bilateral trade between Israeli and Palestinian businesses is subject to the VAT rate applicable in the market where goods are sold and accrues to the tax administration with which the payer is registered. Whilst the Israeli Ministry of Finance receives copies of invoices from Israeli sellers, it does not disclose that information to the PA. The report estimates a loss of approximately $120 million due to this Israeli practice.

Drunk on power

This is only the beginning. The Israeli government is on a power-high with President Trump cheering them on, but this will come to an end. Sometime in the future, Israel will dish out billions of dollars to compensate Palestinians, especially Palestinian refugees, for the historic tragedy they brought upon them. I can envision other countries and companies paying up for their involvement too.

Indeed, Martin Luther King, Jr. was right when he said, “the arc of the moral universe is long, but it bends toward justice.” The arc not only bends, it comes full circle, and haunts those who are responsible for the injustice they perpetrate until they are made to repent, materially or otherwise.

Sam Bahour is managing partner of Applied Information Management (AIM), a policy analyst with Al-Shabaka: The Palestinian Policy Network, a secretariat member of the Palestine Strategy Group, and chairman of Americans for a Vibrant Palestinian Economy. He blogs at Twitter: @SamBahour