Israel’s withholding of taxes and duties due to the occupied Palestinian territories is restricting the growth of the Palestinian economy and worsening an already dire socioeconomic crisis, United Nations sources have said.
Palestine lost some $47.7bn in fiscal revenues to Israel between 2000 and 2017 because of the Israeli occupation of the West Bank and Gaza. According to a new UN report, that missing money hampered the Palestinian Authority’s ability to fund economic and social development programmes.
“The fiscal crisis in Palestine is very deep and very dangerous,” said Mutasim Elagraa, an economist at the United Nations Conference on Trade and Development (UNCTAD). “The current fiscal crisis is exclusively owed to the conditions created by the occupation, and if it continues, the very existence of the Palestinian Authority is at risk.”
The report blames the fiscal crisis in Palestine mostly on “fiscal leakage”, which is the idea that a substantial portion of the revenues collected by Israel on behalf of the Palestinian treasury never reaches the Palestinian government.
According to an agreement signed between the Palestine Liberation Organization (PLO) and Israel in 1994, Israel levies taxes on behalf of the Palestinian authorities, in particular revenues from indirect imports from third countries. But instead of regularly transferring these funds to the Palestinian government, the report says Israel withholds funds, sometimes for very long periods.
Elagraa said this practice not only limits the ability of the Palestinian Authority (PA) to plan and invest, but it also directly impacts the region’s economic development.
“Under the occupation, the economic self-sufficiency of Palestine is impossible,” said the UN economist. “And Israel’s selective implementation of the 1994 protocol makes matters worse because it subjects Palestine’s fiscal and monetary policies to the occupying power.”
Revenues collected by Israel on behalf of the PA include taxes on indirect imports, clearance revenues, border-crossing levies, and property and income taxes on individuals and enterprises in the illegally occupied West Bank.
According to a UN report to be presented to the UN General Assembly on Tuesday, “the cumulative fiscal costs during the 18 years under consideration, without interest, are estimated at $19.5bn. Adding the interest increases the losses by $28.2bn, bringing the total valuation to $47.7bn” – which is more than three times Palestine’s 2017 economic output.
UNCTAD says this estimate is a conservative figure based on the data available, but the correct amount is likely to be much higher.
Elagraa, who coauthored the report, said if that revenues had not been lost to Israel and instead injected into the occupied West Bank and Gaza, Palestine’s gross domestic product (GDP) would have been 7.3 percent higher than it is today and the region would have two million more jobs.
According to UNCTAD, about one in three Palestinians in the labour market is unemployed. In Gaza, the unemployment rate is above 50 percent while the poverty level has reached 53 percent.
Al Jazeera reached out to the Israeli mission to the UN in Geneva for comment, but had not received a response before the publication of this article.
In February 2019, Israel unilaterally decided to withhold $11.5m per month (equivalent to $138m annually) from the money it collects on behalf of Palestine, as a reprisal for the payments made by the PA to the families of people considered a threat to Israeli interests, such as Palestinians who died in clashes with Israeli soldiers, among others.
In response to Israel’s reprisal, the PA refused to accept anything less than the full amount it was due.
The fiscal standoff coupled with a decline in foreign aid severely weakened the region’s economy. As a result, the PA has halved salaries of public employees, cut health services and suspended its financial support to the most disadvantaged.
“The current situation shows the extreme vulnerability of the Palestinian economy to the fiscal pressure of Israel, which retains control over 75 percent of Palestine’s fiscal revenues,” Elagraa said.
The 1994 Protocol on Economic Relations signed by Israel and the PLO should have improved the economy of the Palestinian territories. Under the protocol, Israel gained control of the flow of Palestinian trade and fiscal revenues.
In theory, fiscal revenue collected by Israel on behalf of Palestine is supposed to be paid monthly, but according to the UN report, Israel’s transfers are irregular or insufficient. This undermines the authority’s ability to develop its economy and meet its financial obligations – especially towards the public sector and its employees.