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Taxation in Palestine

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Through Oslo Accords and UNESCO

Background

Until 1967, the West Bank was subject to the Jordanian system of taxation, while Gaza to the Egyptian. Neither territory had previously had economic ties with Israel. After Israel occupied these territories, economic relations with the former rulers were cut and Israel partially integrated the territories into its own economic structures in the form of an incomplete customs union. Israel’s labour market was opened to Palestinian workers, and in 1972 one out of four Palestinian workers was employed in Israel. Military Order 31 of 27 June 1967 assigned all powers of taxation to an Israeli official appointed by the Area Commander. Israel adopted the Jordanian Income Tax Law of 1964 to levy taxes on Palestinians in the West Bank, while making notable changes to its tax rate intervals, but applied Israeli tax laws to Israeli Jews living in settlements there. Under the Jordanian system the highest tax rate of 55% started with incomes of 8,000 dinars. The Israeli authorities altered the rates so that by 1988 this applied to Palestinians earning 5,231 JD (equal to 24,064 Israeli shekels, whereas in Israel the 48% rate only applied to Israeli wage earners earning approximately twice as much (45,600 shekels). This did not affect Israeli West Bank settlers, who taxed at the lower rates effective in Israel. Similarly the self-employed West Bankers appeared to pay more than their Israeli counterparts, but due to the different deductibility regimes, discrimination could not be ascertained.

Access to most public services in Israeli controlled territories is conditional on paying one's taxes, income, property and value-added (VAT) and fines. This system was legalized retroactively in December 1988 under military order. Israel's taxation allows broad leeway and discretion, taking in norms of appeal and the taxpayer's rights. The draconian provisions of Section 194 of the Israeli Income Tax Ordinance, allowing taxation officers to assess what a taxpayer may owe while limiting challenges, and making them conditional on the prior payment of a bond, rarely applied in Israel, has been routine in the West Bank. Likewise, imprisonment for tax offenses is uncommon in Israel but, according to Lazar, "in the territories it is used on a massive scale and for extensive periods of time." Palestinians deeply resented paying taxes on their business and commercial activities to the Occupation authority without receiving the same benefits Israeli taxpayers had in return. In the First Intifada, tax payments dropped 50%, and Israel responded by cutting health benefits.

In 1989, the relatively affluent entrepreneurial Christian town of Beit Sahour, in response to military repression organized a sumud-inspired non-violent boycott of Israeli consumer products in favour of Palestinian-Jordanian wares, and shortly afterwards refused to pay taxes to the occupying power on the basis of the slogan "No taxation under Occupation", which was inspired by the "no taxation without representation" slogan used by Patriots during the American Revolution. They protested paying school taxes because under Israeli occupation as opposed to Jordanian rule they now had to pay for their education, and claimed tax monies received were not used to provide services but to cover the costs of IDF ammunition and tear gas fired at their children. As a result, the IDF placed the town under total curfew for 42 days, blocking food imports, cutting telephone lines, impounding private cars, arresting over forty community leaders, who received year-long gaol sentences, and confiscating cash and property found in house raids amounting to millions of dollars, and one period seizing $US 1,500,000 worth of goods from 300 families, including living room furniture, fridges and stereos which were then sold in Israel at auctions. Closures of schools, medical clinics and food supply chains continued for months after the curfew was lifted. The revolt was crushed in nine months.

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