Taxation in the Palestinian territories

Taxation in the Palestinian territories is a complex system which may involve payment to the Palestinian Authority (PA) and/or Israel in the context of the Israeli–Palestinian conflict. In 2005 the Palestinian Authority collected approximately $34 million per month from taxes and other charges, and Israel collected about $75 million per month in tariffs on foreign imports and value added taxes (VAT) on Israeli goods and services and on average kept about $15 million for the payment of water and power bills of Palestinians, while forwarding the other $60 million to the PA. Israel collected funds account for about two-thirds of the authority's self-generated revenue, which Reuters put at $100 million in December 2012. Since the 2006 Palestinian legislative election, Israel has regularly withheld the taxes it owes the Palestinian Authority.

History

The governance situation in the territories was alluded to in the Oslo Accords and primarily defined by the Oslo II Accords of September 1995 (the Interim Agreement on the West Bank and the Gaza Strip). Oslo II incorporated and superseded:

• the Gaza–Jericho Agreement of 29 April 1994, including the Protocol on Economic Relations
• the Agreement on Preparatory Transfer of Powers and Responsibilities Between Israel and the PLO of 29 August 1994, also known as the Early Empowerment Agreement
• the Protocol on Further Transfer of Powers and Responsibilities of 27 August 1995 also known as the Further Transfer Protocol

Israeli withholdings

Since the 2006 Palestinian legislative election, Israel periodically has not transferred all of the taxes it collects, and earmarked some portions to pay the outstanding debts of the Palestinian Authority. In June 2008, Israel retained a large part of the taxes to cover debts of the Palestinian Authority, and this extra withholding was done in an apparent retaliation for Prime Minister of the Palestinian National Authority Salam Fayyad attempting to undermine Israel – European Union relations. During October and November 2011 in response to Palestine's bid for full membership in the United Nations, admission to UNESCO, and Fatah's steps to reconcile with Hamas in the Fatah–Hamas conflict, Israel refused to transfer about $200 million in taxes collected.

In response to Palestine securing an upgraded status in the UN pursuant to United Nations General Assembly resolution 67/19, Israel withheld the December 2012 tax transfer, and Foreign Minister Avigdor Lieberman said that "The Palestinians can forget about getting even one cent in the coming four months". The withheld money will be used to pay Palestinian debts to the Israel Electric Corporation, and Lieberman also said that the Palestinians had a major debt with the Israeli water authority (Mekorot) that would have to be paid. Both the Israel Electric Corporation and Mekorot are primarily owned by the government of Israel. The Foreign Affairs Council of the Council of the European Union released a statement calling on Israel to "avoid any step undermining the financial situation of the Palestinian Authority" and stating that "Contractual obligations, notably under the [Protocol on Economic Relations], regarding full, timely, predictable and transparent transfer of tax and custom revenues have to be respected." On 9 December 2012, Mahmud Abbas warned he may refer Israel to the International Criminal Court (ICC) if it continues to withhold tax revenues at a meeting of the Arab League at which other members agreed to make up the shortfall in revenues.