With every political and military tension between Israel and Palestine, the Israeli government waves the tax revenue weapon it collects on behalf of the Palestinian Authority, either by withholding or reducing the monthly transfer.
Two days ago, Israeli media reported that the Israeli Finance Minister, Bezalel Smotrich, issued instructions to halt the transfer of tax funds to the Palestinian Authority and urged the Israeli government to reassess its policy on these funds in the wake of the 2023 Gaza War, the Anadolu Agency reported.
The Palestinian Authority relies on tax revenues to fund its general budget, representing about two-thirds of its income for the current year, according to data from the Palestinian Ministry of Finance.
The Palestinian Ministry of Finance estimates the expected net revenues for this year at approximately $5.4 billion, with tax revenues, collected by Israel on behalf of the Palestinian Authority, making up about 64 percent, while local revenues constitute 36 percent of the total income.
What are Palestinian Clearance Revenues?
Clearance revenues are the total revenues collected by Israel on behalf of the Palestinian Authority, converted into Israeli Shekels. These revenues include income tax, value-added tax, purchase tax, and any other taxes and fees resulting from trade between Israel and the West Bank and Gaza, as per the 1994 Paris Economic Agreement.
These taxes are transferred monthly to the Palestinian Treasury after deducting a commission for Israel.
The Palestinian Ministry of Finance estimates the clearance revenue it will receive from Israel during the current year at around $3.45 billion.
According to data, clearance revenues have grown by 109 percent since 2013 up to the present year.
Despite the growth in clearance revenues, Israel has suspended or reduced the transferred funds more than once in the past, especially during periods of political or military tensions between the two sides.
Withholding Tax Transfers to the Palestinian Authority
In 2018, Israel passed a law by which it calculates the amount it believes the Palestinian Authority spent on the salaries of activists, prisoners, and the families of victims each year. This amount is then deducted from the taxes collected on behalf of the Palestinians.
In July 2021, Israel announced that it would withhold $180 million from the tax revenues it had collected on behalf of the Palestinian Authority in 2020, amounting to about seven percent of the total tax revenues for the Palestinian Authority.
In July 2022, Israel announced it would withhold $176 million from the tax revenues it had collected for the Palestinian Authority, for the same reason.
During the current year, Israel deducted about $80 million from the tax revenues for February, as announced by the Palestinian Ministry of Finance at that time.
The Palestinian Authority relies on these funds to meet its obligations, including paying salaries and addressing the needs and providing support for Gaza.
The Palestinian Authority estimates the total bill for employee salaries for this year at about $235.4 million monthly, according to the Palestinian Ministry of Finance.
The Authority also makes payments to the families of victims and the wounded through the transitional expenses line in the general budget, with a total value estimated for this year at around $1.190 billion.
The Palestinian Ministry of Finance estimates that the government's annual spending for the Gaza Strip accounts for 35 to 40 percent of the current budget, totaling about $1.6 billion. This expenditure supports housing, infrastructure rehabilitation, sanitation, water, and energy projects.
The suspension of tax revenue transfers would pose a significant challenge to the Palestinian economy, as the Authority would be unable to pay salaries and meet its obligations. This has led U.S. Secretary of State Antony Blinken to urge the Israeli government to provide the Palestinian Authority with the resources it needs, including Tax revenues.
