PA: Israel held $78 million from monthly tax revenues collected on Ramallah’s behalf

Palestinians say unusually high sum a result of Smotrich decision to double deductions over payments to security prisoners, as PA’s finances further deteriorate

Jacob Magid is The Times of Israel's US bureau chief

Palestinian Authority President Mahmoud Abbas, center, attends a Christmas midnight Mass in the Church of the Nativity in the West Bank town of Bethlehem, December 25, 2022. (Ahmad Gharabli/Pool Photo via AP)
Palestinian Authority President Mahmoud Abbas, center, attends a Christmas midnight Mass in the Church of the Nativity in the West Bank town of Bethlehem, December 25, 2022. (Ahmad Gharabli/Pool Photo via AP)

The Palestinian Authority Finance Ministry claimed on Thursday that Israel had deducted NIS 267 million ($78 million) from the monthly tax revenues it collects on Ramallah’s behalf, in the latest blow to the PA’s deteriorating economic situation.

The ministry attributed the unusually high deduction to Israeli Finance Minister Bezalel Smotrich’s decision to double the amount of Palestinian tax revenues that Israel would seize, though this still did not fully explain the amount.

The move would further prevent the PA from paying in full the salaries to its roughly 130,000 public employees, including members of its security forces.

Due to the PA’s lack of statehood status, Israel is responsible for collecting customs duties and other tax revenues on its behalf. It transfers them to Ramallah on a monthly basis, providing funds that amount to nearly 65 percent of the Palestinian annual budget, which is roughly NIS 18 billion ($5.27 billion). By comparison, Israel’s annual budget is around $527 billion.

In 2018, Israel passed a law requiring that a sum equal to the monthly stipends the PA pays to security prisoners and the families of slain attackers be withheld from the tax revenues it transfers to the Palestinians.

Israel’s security establishment opposed the legislation at the time, warning that it could risk leading to the PA’s collapse, which would once again force Israel to take responsibility for providing civil services to millions of Palestinians in the West Bank. Such a collapse would also create a vacuum that the security establishment feared would be filled by more extremist forces such as the Hamas terror group.

The coalition at the time, led by current Prime Minister Benjamin Netanyahu, moved ahead with the legislation anyway, though it did include a clause requiring the deduction to be approved by the cabinet on a regular basis by the cabinet. As a result, the deductions have often not been implemented, as the understanding in Jerusalem appears to be that the PA’s collapse would not be in Israel’s interest.

In 2021, then-defense minister Benny Gantz offered the PA a NIS 500 million ($155 million) loan in order to keep the cash-strapped government afloat.

Prime Minister Benjamin Netanyahu (L) and Finance Minister Bezalel Smotrich at the Prime Minister’s Office in Jerusalem, January 11, 2023. (Olivier Fitoussi/Flash90)

But the introduction of the new hardline Israeli government at the end of last year has seen the stance toward the importance of the continued existence of the PA start to shift.

Smotrich has long expressed his support for dissolving the PA and said last month that he was not interested in its continued existence so long as it continues paying stipends to terrorists.

Critics of the Palestinian policy in the US and Israel argue that it incentivizes terror, dubbing it “pay-for-slay.”

To many Palestinians, solidarity with those imprisoned for various acts opposing Israel, including terrorist violence, is a key tenet of the national movement. The payments are also seen as a crucial form of welfare for families where the breadwinner is imprisoned by what they view as an unjust military legal system.

In just its first month, the new Israeli government approved a series of sanctions against the PA for its successful effort at the United Nations to have the International Court of Justice weigh in on Israel’s conduct in the territories. The measures included seizing NIS 139 million ($39 million) from Palestinian tax revenues Israel had already withheld, and transferring it to the families of Israelis killed in Palestinian terror attacks.

Then on Thursday, Smotrich announced that Israel would be doubling the amount of tax revenues withheld from the PA over the next six months to make up for six months where the previous government did not withhold such funds in 2021.

This meant that instead of deducting NIS 50 million ($15 million) from Palestinian tax revenues for the month of January, Israel would withhold NIS 100 ($30 million), he said.

The $78 million the PA said was missing from the January sum of tax revenues it was owed was much larger than the $30 million that Smotrich announced he had deducted hours earlier. Most but not all of the remaining discrepancy might be explained by the $39 million that the Israeli cabinet had transferred to the families of terror victims. A spokesman for the PA’s finance ministry did not immediately respond to a request for clarification.

Senior Palestinian officials have warned that such steps could lead to the PA’s demise. PA Prime Minister Mohammad Shtayyeh told Haaretz last month that the latest round of sanctions Israel approved against Ramallah represented “another nail in the [Palestinian] Authority’s coffin,” urging the international community to intervene.

Palestinian Authority Prime Minister Mohammad Shtayyeh meets with a congressional delegation in Ramallah on January 19, 2023. (Palestinian PMO/Instagram)

“Previous Israeli governments tried to finish off the prospect of a two-state solution, while the current government is also fighting the PA itself,” Shtayyeh charged.

“We’re reading the situation very clearly,” he said. “Increasing construction in settlements alongside disconnecting Jerusalem from the West Bank, annexing Area C territory and now crushing the PA — that’s the plan being carried out by the Israeli government.” Area C is approximately 60% of the West Bank under full Israeli security and civil control, where all the settlements are located and Palestinian development is very limited.

In coalition agreements between Netanyahu’s Likud party and Smotrich’s far-right Religious Zionism faction, the prime minister agreed to advance the annexation of West Bank land. The commitment was vaguely worded, however, enabling Netanyahu to make no movement on the issue if he so chooses.

Smotrich has long advocated for annexing large parts of the West Bank, massively expanding settlement construction, legalizing illegal Israeli outposts and demolishing wildcat construction in Area C carried out by Palestinians, for whom permits are rarely granted.

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