Keep shaking hands Abbas while Israel rips off an arm: PA loses $300m annually due to agreements with Israel

[ PIC 05/10/2013 – 02:55 PM ]

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GENEVA, (PIC)– The occupied Palestinian territory (OPT) loses, by preliminary estimates, some US$300 million annually in “leakage” of customs, purchase and value-added taxes which are not transferred to the Palestinian treasury by Israel, UNCTAD’s Report on Assistance to the Palestinian People says.

The recently released report said, “UNCTAD’s report focuses only on fiscal leakage from the revenue lost from taxes on direct and indirect imports and on smuggled goods into the OPT from or via Israel. According to the Protocol on Economic Relations, or Paris Protocol, signed in 1994 by Israel and the Palestine Liberation Organization, leaked revenue from taxes on direct and indirect imports is supposed to be transferred to the Palestinian Authority. The report says that an estimated unpaid taxes on smuggled goods arriving from Israel represent 17 per cent of total Palestinian tax revenues, or about $305 million in 2012, enough to cover 18 per cent of the Palestinian Authority (PA) wage bill.

If this “leakage” could be curtailed, and the money transferred from the Israeli treasury to the Palestinian treasury, the resulting increase in revenue would give the PA greater fiscal policy space and help to expand economic growth and employment. The gross domestic product of the OPT would increase by 4 per cent, and employment would increase by 10,000 jobs per year, the report contends.

The report stresses, however, that this fiscal loss is from one source only and does not include the revenue leakages from many other sources, including taxes levied by Israel on incomes of Palestinians working in Israel and settlements; seigniorage revenue loss from using the Israeli currency (shekel) in the OPT; revenue loss from under-pricing imported goods in invoices due to lack of Palestinian control over borders and access to proper trade data; revenue loss related to lack of control over land and natural resources; financial resources loss related to goods and services imported through the Palestinian public sector (petroleum, energy, and water); and fiscal loss as a result of the smaller tax base caused by the decimation of the productive base and loss of natural resources to occupation.

The report estimates that 39 per cent of Palestinian imports from Israel originate in third countries, cleared as Israeli imports before being sold in the OPT as if they had been produced in Israel. Customs revenue from these “indirect imports” is collected by the Israeli authorities but not transferred to the PA. Smuggling is another source of significant fiscal revenue loss. Where the smuggled goods are produced in Israel, the PA loses value-added tax (VAT) and purchase tax revenue. However, where goods are produced in a third country, tariff revenue is also leaked along with VAT and purchase tax revenue. The value of goods smuggled from Israel into the OPT is hard to estimate, but may make up from 25 to 35 per cent of the OPT’s total imports, the report says.

The report makes recommendations for reducing fiscal resource leakage. These include proposed changes to the Paris Protocol, so that it is a more balanced framework “consistent with Palestinian sovereignty needs for economic, fiscal and policy independence.” The report also recommends that the PA should have full access to all data related to imports from or via Israel when the final destination of goods is the OPT; that existing time restrictions be abolished which currently prevent the PA from claiming due revenue; that Palestinian dependency on Israel be ended by removing barriers to trade with countries other than Israel; that Palestinian custom brokers be allowed access to Israeli ports and crossing points so that they can monitor customs procedures; and that the PA be provided with financial and human resources needed to strengthen its customs administration capacity.”

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