A Palestinian vendor displays food, including pickled vegetables and olives, in preparation for Ramadan at a market in the West Bank city of Hebron,, June 28, 2014. (AP/Majdi Mohammed)
A Palestinian vendor displays food, including pickled vegetables and olives, in preparation for Ramadan at a market in the West Bank city of Hebron, Saturday, June 28, 2014. (photo credit: AP/Majdi Mohammed)
Row over PA pay to inmates, including terrorists, takes toll

PA tax dispute with Israel leaves its employees struggling with slashed salaries

Palestinian finance minister says Ramallah has found itself in ‘a dangerous financial position,’ but partial solution may be on the horizon

Adam Rasgon is the Palestinian affairs reporter at The Times of Israel

A Palestinian vendor displays food, including pickled vegetables and olives, in preparation for Ramadan at a market in the West Bank city of Hebron, Saturday, June 28, 2014. (photo credit: AP/Majdi Mohammed)

Earlier this year, Ahmad, a member of the Palestinian Authority security forces, was struggling to make ends meet. Married and a father of two, he said he received a meager salary of NIS 2,500 ($700).

That was even before the PA spiraled into a financial crisis, prompted by Israel’s decision to withhold tax funds from the Palestinians in protest of their payments to security prisoners and their families and the PA’s subsequent refusal to accept any of the tax revenues Israel collects on its behalf.

After that, Ahmad saw his already-insufficient monthly earnings slashed by NIS 500 ($140), further straining his family’s livelihood.

“My son has a skin disease and I need to purchase medicine for him for 800 shekels every month,” Ahmad, a 31-year-old resident of Nablus who declined to provide his family name, said. “I need to pay for that, food, rent and many bills. I simply do not have enough money now to cover my expenses.”

Like Ahmad, tens of thousands of PA employees in the West Bank have been taking home drastically smaller paychecks since March.

Israel started to implement a new law in February, allowing the government to deduct $11.5 million from the taxes that it collects every month on behalf of the PA. Israeli officials have said the sum withheld is equivalent to what the PA pays to security prisoners, including terrorists, and their families.

Palestinian Authority President Mahmoud Abbas speaks to Palestinian leaders at the Muqata, the PA headquarters, in the West Bank city of Ramallah, on February 20, 2019. (ABBAS MOMANI / AFP)

Israel maintains that the Palestinian policy of paying security prisoners and their families incentivizes violent attacks against Israelis.

The Ramallah-based Palestinian leadership contends that it seeks to provide social welfare to Palestinian families and make up for what it describes as an unfair military justice system.

PA President Mahmoud Abbas has protested the Israeli law, and has been refusing to receive any of the some $170-200 million in taxes that Israel collects on behalf of the Palestinians every month and which make up more than half of their budget.

“We will not receive partial funds,” Abbas told a PA cabinet meeting in April.

Salary cuts

The tax dispute, compounding a more than 50 percent drop in international aid over the past six years, has plunged the Palestinians into precarity — what PA Finance Minister Shukri Bishara recently described as a “dangerous financial position.”

The Palestinians have cut all PA employees’ salaries over NIS 2,000 and curtailed operational expenses. They have also stopped granting raises and borrowed tens of millions of dollars from local banks.

Jafar Sadaka, a reporter for the PA’s official news outlet Wafa, said Ramallah cut his salary from NIS 4,000 to around NIS 2,000.

“I now only pay for whatever my family absolutely needs. I mean food, drinks, water and electricity — the essentials,” said Sadaka, a 51-year-old resident of Anza, a village south of Jenin, noting that he has struggled to come up with funds for his daughter’s quarterly university tuition and monthly loan payments.

He added: “I even was not able to buy gifts or new clothes for my children this past year during Ramadan,” a Palestinian custom on Eid al-Fitr, the holiday that marks the conclusion of the month of Ramadan.

File: Palestinian security forces in Hebron, November 14, 2017. (Wisam Hashlamoun/Flash90)

Sadaka, a father of six, said he has picked up side jobs in the evenings for more cash.

“The extra money helps, but I still find it very difficult to provide for my family,” he said.

Palestinian businesspeople have said that the PA’s refusal to accept the tax funds has taken a significant toll on the sluggish economy in the West Bank, where the unemployment rate stands at 18%.

“The PA employees usually spend their salaries in our markets and propel our economy,” Jamal Jawabra, the secretary-general of the Federation of Palestinian Chambers of Commerce, said. “But when they do not make purchases, store-owners buy fewer goods from factories, which in turn begin to produce less. It slows down the whole economy.”

Hisham Massad, an accountant from Jenin, said many of the 600 businesses whose bills his company manages have fallen into debt.

“A large number of the firms I work with are on the verge of collapsing,” he said. “They are accruing debts that they cannot afford to pay back. In many cases, they are suffering 30%-40% drops in sales.”

Massad added that he has recommended to his clients that they cut costs as much as possible to avoid accumulating greater debts.

Illustrative photo: Cars passing through central Ramallah. (photo credit: Ilia Yefimovich/Getty Images/JTA)

Mohammed Odeh, a PA official who works in Abbas’s office, said he recently told his son he could not take him to the movie theater.

“It felt terrible, but I really do not have the money to spend on things like that,” Odeh, a 62-year-old father of four, said.

Odeh said the PA slashed his salary from NIS 6,000 to around NIS 3,000.

Backing the PA

Despite their continued financial hardship, the three PA employees who spoke to The Times of Israel for this story said they support Ramallah’s decision to reject Israel’s deducted tax transfer.

“This is a very emotional issue that affects so many Palestinian homes,” Sadaka said. “Almost every Palestinian has a family member who was in prison or was martyred. The PA cannot accept partial funds because doing so would legitimize Israel referring to the prisoners and martyrs as terrorists.”

Odeh contended that Ramallah cannot accept the funds because it would set a precedent that could result in additional future deductions.

“Israel will disagree with us on another issue in the future and do the same thing,” he said. “It will take more of our money without our permission. We cannot allow that to be the case.”

Meanwhile, Abbas has turned to Arab states to provide the PA with a safety net to help it overcome its financial woes.

The Muqata’a in Ramallah, the headquarters of the Palestinian Authority (photo credit: Wikimedia Commons/PalestinianLiberator/File)

Although most of the Arab world has not responded to Abbas’s plea by transferring funds to the PA, Qatar in May announced it would send $300 million to Ramallah’s coffers. According to Palestinian officials, Doha will deliver $50 million in grants and $250 million in loans to the PA over the next 12 months, providing some breathing room for the PA.

Several PA ministries declined to respond to inquiries.

Partial solution?

Meanwhile, Israeli and Palestinian officials have met a handful times over the past several months to discuss the dispute over the tax funds.

Abbas confidant Hussein al-Sheikh has said the talks have not produced a solution to the issue.

“I met yesterday with Israeli Finance Minister [Moshe] Kahlon and ways to resolve the withholding of the Palestinian funds by Israel were discussed, but no progress was made,” Sheikh tweeted on June 26.

A spokesperson for Kahlon confirmed that he had met Sheikh on June 25 to discuss “civilian and economic issues,” but declined to answer additional questions.

However, a partial solution in addition to the funds from Qatar may be on the horizon.

The Kan public broadcaster on July 2 quoted an unnamed Palestinian source as saying Israel and the PA had reached an agreement in principle to exempt the Palestinians from paying fuel taxes.

PLO official Ahmad Majdalani (Ahmad Majdalani Facebook page)

The PA usually pays some $56 million in duties to Israel every month for fuel it imports to the West Bank and Gaza Strip, a sum that, before the current crisis, it would recoup when the Jewish state would transfer the $170-200 million in taxes it collects for Ramallah to its coffers.

PA Social Affairs Minister Ahmad Majdalani told The Times of Israel that the matter has been discussed but the PA and Israel still have not agreed to it.

If the Palestinians and Israel agree to the proposal, it would provide about the equivalent of one-third of the taxes that Israel collects for the PA every month — and some temporary relief.

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