On Sunday, Israel approved a plan to send taxes earmarked for Gaza to Norway instead of the Palestinian Authority (PA), which exercises limited self-rule in the Israeli-occupied West Bank.
Since November, taxes that would ordinarily be sent to Gaza have been frozen by the Israeli government.
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Under the terms of a deal reached in the 1990s, Israel collects tax on behalf of the Palestinians and makes monthly transfers to the PA pending the approval of the Ministry of Finance.
While the PA was ousted from the Gaza Strip in 2007, many of its public sector employees in the enclave kept their jobs and continued to be paid with transferred tax revenues.
Weeks after the Hamas attack on southern Israel on October 7, Israel took the decision to withhold payments earmarked for those employees in the Gaza Strip on the grounds that they could fall into the hands of Hamas.
Now, Israel says it will instead send the frozen funds to Norway. “The frozen funds will not be transferred to the Palestinian Authority, but will remain in the hands of a third country,” the Israeli prime minister’s office said in a statement released on Sunday.
Why does Israel control Palestinian tax revenue?
The system by which taxes and customs duties are collected by Israel on behalf of the PA and transferred to the authority on a monthly basis was agreed in a 1994 accord.
Known as the Paris Protocol, the accord was meant to manage the economic relationship between Israel and the Palestinian territories it occupied until a final peace settlement was reached between the two states.
Approved in the wake of the optimism generated by the Oslo Accords, which were publicly ratified by Israeli Prime Minister Yitzhak Rabin and Palestinian leader Yasser Arafat at the White House in September 1993, this protocol was supposed to end within five years.
However, 30 years later, the financial settlement continues to give the Israeli state what the United Nations Conference on Trade and Development (UNCTAD) has called “a disproportionate influence on the collection of Palestinian fiscal revenue, leading to deficiencies in the structure and collection of customs duties resulting from direct and indirect importing into Palestine”.
How much money is Israel withholding?
The tax revenues collected by Israel on behalf of the PA amount to around $188m each month, and account for 64 percent of the authority’s total revenue.
A large portion of this is used to pay the salaries of the estimated 150,000 PA employees working in the West Bank and Gaza, despite it having no jurisdiction over the Strip.
On November 3, the Israel security cabinet voted to withhold a total of $275m in Palestinian tax revenues, including cash collected for prior months that was still with Tel Aviv.
“The PA is not clear about how much of the tax revenues go to Gaza – it’s a black box,” Rabeh Morrar, director of research at the Palestine Economic Policy Research Institute-MAS, told Al Jazeera. “Sometimes they say 30 percent, sometimes 40, sometimes 50.”
Under terms set by Israel’s cabinet on Sunday, the monthly tax revenue previously allocated to PA staff in Gaza will instead be transferred to a Norwegian-based trust account. However, that money cannot be released by the fund to pay workers in Gaza without permission from Israel.
The only member of the Israeli government to oppose plans to send the funds to Norway was far-right National Security Minister Itamar Ben-Gvir, who insisted that the initiative “does not guarantee that the money will not reach the Nazis from Gaza”.
How does Israel exercise ‘disproportionate influence’ over the PA?
The Israeli state has often used its control of the PA’s tax revenues as a means to blackmail and punish the authority.
In January 2023, for instance, the newly-formed Israeli government – seen as the most far-right coalition government in the country’s history – decided to withhold $39m in tax revenues from the PA following the authority’s decision to ask the International Court of Justice (ICJ) to rule on the legality of Israel’s decades-long occupation.
“Israeli blackmailing of our tax revenues will not stop us from continuing our political and diplomatic struggle,” said Palestinian Prime Minister Mohammad Shtayyeh at the time after Israel’s security cabinet had earlier described the PA’s ICJ move as a “decision to wage political and legal war against the State of Israel”.
What effect has Israel’s withdrawal of public money had on Palestine?
“The PA owes billions in internal debt to local banks, hospitals, medical companies and the private sector,” said Morrar. “There are also debts [owed], for example, for privately owned buildings rented out by the government. They have not been able to pay those back.”
In 2021, the PA’s financial crisis, exacerbated by Israel’s periodic refusal to pay the PA its total tax revenue share pre-October 7, prompted it to reduce all salaries by 25 percent.
Since November, when Israel decided to freeze funds earmarked for Gaza, the PA has refused to accept any money at all in protest.
Against the backdrop of Israel’s continued bombardment of the Gaza Strip, which has killed more than 25,000 Palestinians since October 7, and as a result of its decision to refuse Israel’s terms, the PA has not been able to pay employee salaries for a month and a half.
While some reports have emerged that the PA may be about to relent and agree to receive partial payments from Israel, which would release some much-needed funds to many of its cash-strapped staff, the occupied West Bank remains at the mercy of Israeli diktats.
Indeed, Israel suspended the work permits of some 130,000 day workers from the occupied West Bank after the war began. And a total of 355 Palestinians have been killed in the territory, including in occupied East Jerusalem, by Israeli forces and Israeli settlers since October 7.