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Palestine Missing Out On USD285m In Revenues, Says World Bank

by Lorys Charalambous, Tax-News.com, Cyprus

19 April 2016


The Palestinian Authority (PA) is losing an estimated USD285m in revenues annually under the current economic arrangements with the Government of Israel, according to a new World Bank report.

"If revenue losses are mitigated, this can reduce the 2016 fiscal deficit to below USD1bn, and narrow the expected financing gap by more than 50 percent," Steen Lau Jorgensen, World Bank Country Director for the West Bank and Gaza, said.

The revenue sharing arrangements, outlined by the Paris Protocol, through which the Government of Israel collects value-added tax (VAT), import taxes, and other revenues on behalf of the Palestinian Authority, and shares them on a monthly basis, have not been systematically implemented, the report said. The majority of the estimated fiscal loss results from tax leakages on bilateral trade with Israel and undervaluation of Palestinian imports from third countries.

The annual USD285m loss excludes revenues collected by the Government of Israel in Area C (61 percent of the West Bank under Israeli control) not quantified due to data constraints. The report states that reviving the Israeli-Palestinian Joint Economic Committee, originally set to monitor implementation of the Paris Protocol and resolve outstanding issues, could significantly enhance economic and fiscal cooperation between the parties. This includes reviewing the high handling fee charged by Israel, which currently finances close to a third of the Israeli customs and VAT department's total budget.

In addition, USD669m in accumulated revenues are pending with the Government of Israel, the World Bank said. The amount includes pension contributions from Palestinians working in Israel and their employers, expected to be transferred to a dedicated fund that is yet to be established by the PA. It also covers deductions from the salaries of these workers that should be transferred to cover their health services and social benefits.

Recently, the Government of Israel agreed to transfer USD128m to offset some of the losses accumulated over the years. The report commends this first step. The report also notes that more needs to be done to overcome tax losses and stimulate growth in an economy that is not growing enough to raise living standards or reduce high unemployment.

TAGS: tax | value added tax (VAT) | budget | Israel | West Bank | unemployment | import duty | standards | trade | services

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