Myths & Facts

MYTH: “Israel has no justification for withholding tax monies due to the Palestinian Authority.”

FACT: Under the Oslo interim agreement, Israel, the West Bank, and Gaza are in a customs union administered by the Israeli government. Israel collects a duty on any foreign imports destined for the West Bank and Gaza as welll as a value added tax on goods and services from Israel destined for the Palestinian territories.

At the beginning of 2001, Israel decided to withhold more than $50 million in taxes it owed to the Palestinian Authority (PA) in response to the ongoing violence. U.S. officials, and others, pressured Israel to transfer the money because of the PA’s dire financial straits and inability to pay many of its bills. Israel recognized that its action was harsh, but believed it was necessary to demonstrate to the Palestinians that the inability or unwillingness to stop the violence had a cost. Israel must use whatever leverage it can to protect its citizens and this economic sanction was a milder response than a military one.

While Israel ‘s action was blamed for the sorry state of the Palestinian economy, the truth was the Arab countries suspended the transfer of hundreds of millions of dollars, collected as donations, meant for the PA. The justification for the Arab states’ action was their concern that the funds would be embezzled and encourage further corruption in the PA (Ha’aretz, February 11, 2001). For example, a Kuwaiti newspaper reported that Yasser Arafat stole more than $5 million in foreign aid intended for needy Palestinians (Al-Watan [Kuwait], June 7, 2002).

In July 2002, Israel agreed to transfer some of the tax revenues to the Palestinians as a confidence-building measure after Palestinian violence subsided, and an agreement was reached to set up a committee of U.S. representatives to oversee the transaction (Jerusalem Post, July 21, 2002). Israel subsequently began to forward the taxes it collected to the PA, after deducting the amount owed for electricity and water bills that many Palestinians refused to pay Israeli utilities.

Following the election of Hamas in 2006, Israel again began to withhold tax revenue on the grounds that it had no obligation to help finance a government that was calling for its destruction. Furthermore, Israel argued that the agreement to remit these taxes to the PA was part of the Oslo accords that Hamas explicitly said it would not honor. The United States, the European Union and other countries also froze funding because Hamas is a terrorist group that does not recognize Israel as a country.

While Israel wants to deny Hamas the resources it needs to wage a terrorist war, the government does not want to harm the Palestinian people and therefore agreed in May 2006 to release tax revenues for humanitarian purposes, such as medicine and health needs (UPI, May 11, 2006).

Source: Myths & Facts by Mitchell G. Bard and Israel HighWay

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