In move seen as ‘nearly suicidal,’ Abbas’s PA refuses tax transfers from Israel

Palestinian Authority, which has formally cut security ties to Israel over annexation plans, heavily relies on these funds amid drop in donor aid, economic crisis caused by virus

Palestinian Authority President Mahmoud Abbas at his headquarters in the West Bank city of Ramallah on May 7, 2020. (Nasser Nasser/Pool/AFP)
Palestinian Authority President Mahmoud Abbas at his headquarters in the West Bank city of Ramallah on May 7, 2020. (Nasser Nasser/Pool/AFP)

The Palestinian Authority on Wednesday said it will no longer accept tax revenue transfers from Israel as it pushes ahead with efforts to void understandings and end coordination with Israel.

“We assert that we refused and continue to refuse the delivery of the tax revenues in adherence to the decision of the Palestinian leadership that we are absolved of all understandings and agreements with Israel,”  Palestinian Civil Affairs Commission director Hussein al-Sheikh, who is also a member of the Fatah Central Committee, wrote on Twitter.

PA government spokesperson Ibrahim Milhim confirmed al-Sheikh’s statement, saying that the PA had rejected its “regular tax transfer” from Israel for May 2020.

The Palestinian news agency Maan also quoted Milhim as saying that the PA had rejected the funds after Israel tried to condition them on the revival of coordination.

Hussein al-Sheikh, a close confidant of Palestinian Authority President Mahmoud Abbas, speaking on Palestine TV, the official PA channel. (Screenshot: Palestine TV)

The move is likely to cause widespread economic hardship in the PA, which had to abandon a previous attempt to reject the payments due to severe financial difficulties.

In 2019, tax revenues transferred to the Palestinian Authority by Israel accounted for approximately 60 % of the Palestinian budget. Given the instability in international funding during the coronavirus crisis, as well as the drying up of domestic tax revenue, Israeli payments to the PA may account for a much larger share in 2020.

A girl stands at the entrance of a school run by United Nations Agency for Palestinian Refugees (UNRWA) in Balata refugee camp, east of Nablus in the West Bank on August 29, 2018. (AFP PHOTO / Jaafar ASHTIYEH)

Washington Institute for Near East Policy Adjunct Fellow Neri Zilber wrote on Twitter that the move was “nearly suicidal” given the PA’s situation.

The coronavirus crisis has already caused significant damage to the West Bank economy, with the World Bank predicting on Monday that the Palestinian economy could shrink as much as 11% in 2020.The Bank projected the PA’s financing gap to increase over $1.5 billion in this period.

The Trump administration also cut hundreds of million of dollars in financial aid to the PA after relations between Ramallah and Washington soured over the White House’s December 6, 2017, recognition of Jerusalem as Israel’s capital.

The US has since cut all aid to the Palestinians, including to Israeli-Palestinian coexistence programs and six East Jerusalem hospitals.

On May 21, Palestinian Authority President Mahmoud Abbas declared that the PA was “absolved” of all agreements and understandings with Israel and the US. Abbas said his statement was in response to repeated Israeli violations of those agreements, including the planned unilateral annexation of parts of the West Bank by Israel.

The agreement in question here is the 1994 Paris Protocol, a treaty which established a customs union between Israel and the PA. The PA lacks an international port of entry, meaning all goods entering and exiting the West Bank must pass through Israeli border crossings. Israel has been responsible for levying taxes on imports and exports before transferring the funds to the PA.

This is not the first time the Palestinian Authority has rejected tax payments from Israel. In April 2019, Ramallah refused to accept tax revenues due to conflicts over PA payments to the families of Palestinians convicted of terrorism by Israel, kicking off a months-long standoff.

Israel has long tried to clamp down on hundreds of millions of dollars in stipends paid out to Palestinians convicted of security offenses or the families of attackers, which it says encourages terror. Ramallah has vowed to continue the payments, describing them as a form of social welfare and compensation for what it claims is an unfair military justice system.

In 2018, Israel passed a law authorizing the deduction of the payments — estimated at about NIS 500 million shekels ($145 million) annually — from the tax revenues.

The Palestinian Authority responded by refusing to accept the revenues for several months until economic pressure forced them to accept an agreement which allowed Israel to continue deducting the prisoner payments.

On Tuesday Palestinian Prisoners Affairs Commission chairman Qadri Abu Bakr indicated that this year Israel had not been deducting these payments.

PA President Mahmoud Abbas heads a leadership meeting at his headquarters, in the West Bank city of Ramallah, May 19, 2020. (Alaa Badarneh/Pool via AP)

An Israeli official told The Times of Israel that the recent failure to make the monthly deductions was because the Finance Ministry has yet to receive an order from the security cabinet to do so, as required by the 2018 law.

Asked for comment on the lack of deductions, the Prime Minister’s Office said that “the government will act in accordance with the law. The delay does not stem from a change in approach.”

The PA’s decision also calls into question an NIS 800 million loan by Israel to the Palestinian Authority this month, intended to help it weather the financial damage of the corianvirus crisis. The loan was intended to be sent as a “top-up” to existing tax revenue transfers to the PA.

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