Israeli deduction of taxes to worsen Palestinian financial crisis

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Palestinians are seen inside their temporary house
Palestinians are seen inside their temporary house "caravan" in the southern Gaza Strip city of Khan Younis on July 7, 2015. The 50-day war between Israel and Gaza Hamas-led militant groups ended after Egypt brokered a truce between the two sides. However, people in the coastal enclave still live amid poverty, unemployment and the ongoing endless Israeli blockade. (Xinhua/Wissam Nassar)

The Israeli government’s decision to deduct millions of U.S. dollars from Palestinian tax revenues will exacerbate the Palestinian Authority (PA)’s financial crisis in 2020, analysts said.

Last month, Israel said it will freeze 43 million dollars from the tax revenues it collects on behalf of the Palestinians, which is the amount the Palestinian government pays monthly to families of those killed or imprisoned by Israel for resisting its occupation.

Under an economic treaty reached in 1995, Israel collects taxes from the Palestinian trade on the PA’s behalf.

Analysts said the move, combined with the significant drop of international funds and donations paid to the PA, “would double the PA’s financial crisis and weaken its abilities to fulfill its obligations for its employees.”

Samir Abdullah, director of the Ramallah-based Palestine Economic Policy Research Institute, told Xinhua that the PA will face “serious challenges during 2020 that threaten its abilities to completely fulfill its commitments.”

“The financial crisis will aggravate the PA’s fiscal deficit,” Abdullah said, adding that the PA also witnessed a significant decrease in its domestic revenues, which constitutes 30 percent of its budget.

In February last year, the Israeli government deducted 502 million Israeli shekels (about 143 million dollars) from the PA’s tax revenues. The deduction caused a severe financial and economic crisis to the PA, which went on for several months.

“The reduce of employees’ salaries has weakened the power of purchase in the local market and this has consequently led to a deterioration in the Palestinian economy,” he said.

Currently, the Palestinian economy has recorded a sharp slowdown in its growth for a second year in a row. In 2018, the Palestinian economy witnessed a slowdown in GDP growth to reach 0.7 percent compared to 3 percent in 2017, according to official statistics.

Mo’ayad A’fana, a Palestinian economic expert, said that solving the financial crisis “is not easy and it will not be solved in the short run because it is totally linked to the stalled political track between Israel and the Palestinians.”

“The PA was badly affected by pressures from the United States, either by cutting the U.S. funds or by pressuring on other donor countries to follow the U.S. footsteps as a punishment to the Palestinians,” he said.

A’fana proposed a solution to the current financial crisis, saying that the Palestinians should prepare an organized plan, based on recruiting funds to the Palestinians “through activating the Arab network and other Islamic and international sources.”

“The PA should also work on a campaign of gaining an international political and diplomatic support to impose pressure on Israel to stop these measures and also sue Israel in the International Criminal Court for deducting its money,” he said.

Palestinian Prime Minister Mohammed Ishtaye said the Israeli decision is “a deliberate measure aimed at deepening our financial crisis.”

Hussein al-Sheikh, chairman of the Palestinian Corporation for Civil Affairs, met last week with Israeli Minister of Finance Moshe Kahlon to explain the Palestinian side’s rejection and condemnation of the Israeli decision.

“We stress our rejection to the Israeli piracy of our money under the pretexts that we pay this money to families of dead and wounded and to the prisoners,” said al-Sheikh.

“We are sticking to paying their dues whatever the price is,” he said.

Palestinian officials said the government is facing difficulties in finding alternative sources of financing and warned that the Israeli decision will lead to more tensions between the two sides. Enditem

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