Jerusalem Center for Security and Foreign Affairs (JCFA)

Vol. 24, No. 20

• The Israel-Palestinian Oslo Accords (1993-1995) established agreed-upon, reciprocal economic and financial commitments to strengthen and enhance their interest in achieving a “just, lasting and comprehensive peace.”¹
• To this end, Israel agreed to waive certain taxes in favor of the Palestinian Authority (PA), assuming that their reciprocal economic and financial commitments agreed to in the Oslo Accords would contribute to their peaceful relations.
• Based on this commitment, since 2010 alone, Israel has collected over 107.5 billion shekels on behalf of the PA.
• Rather than using this tax income to promote peace, the Palestinians have used the money to fund a host of different policies and campaigns that fundamentally breach their commitments in the Oslo Accords, including, inter alia, incitement of terror, the “Pay-for-Slay” terror reward policy, promoting Palestinian statehood, and using international fora to hound Israeli officials.
• In their attempt to falsify and misrepresent the Oslo Accords, the Palestinians are now claiming that the agreed-upon taxes are “Palestinian monies” stolen by Israel.
• In light of these actions, which are tantamount to a unilateral and unauthorized alteration of the Palestinian commitments according to the Oslo Accords, Israel should reconsider its position regarding the tax waivers and adopt performance-based criteria as a precondition for any future transfers.

The subject of the taxes collected by Israel and transferred to the Palestinian Authority, pursuant to their reciprocal obligations in the Oslo Accords, is often framed in terms of a false narrative promulgated by the Palestinians according to which, at best, Israel is illegally hindering the Palestinian tax collection. At worst, Israel is “stealing” Palestinian money.

Despite such Palestinian propaganda, the truth of the matter is that Israel is the rightful, legal beneficiary of all the taxes collected, and Israel’s agreement to waive those taxes for the benefit of the Palestinian Authority is inherently linked to the framework of reciprocal commitments of the Oslo Accords.

The “Oslo Accords” is a generic name for several agreements between Israel and the PLO from September 1993 through September 1995. The agreements were essentially made up of four primary documents: The Declaration of Principles, signed September 1993;² The Protocol on Economic Relations, signed April 1994;³ The Agreement on the Gaza Strip and Jericho Area, signed May 1994;⁴ and the Interim Agreement on the West Bank and the Gaza Strip that was signed in September 1995 (hereinafter: The Interim Agreement).⁵

This paper will present the subject’s foundations and development over time, leading to the current practice, to help readers better understand the complexities of the taxes.

The Basic Foundation

According to the 1922 League of Nations Mandate for Palestine,⁶ the entire area to the west of the Jordan River, including Judea, Samaria, the Gaza Strip, together with the rest of Israel, was allocated for the specific purpose of “reconstituting” the Jewish national homeland. The 1947 United Nations Partition Plan could have changed that situation, but the Arab countries rejected it. Upon Israel’s independence in 1948, Egypt invaded the Gaza Strip, and Jordan invaded Judea and Samaria. While Egypt, Jordan, and the other Arab countries had the opportunity to create a “Palestinian” state in the areas they occupied, Egypt opted to hold the Gaza Strip under military rule. At the same time, Jordan attempted to annex Judea and Samaria in a move rejected by the international community. In this context, from 1948 to 1967, all taxes in the Gaza Strip were collected by Egypt, and Jordan collected all taxes in Judea and Samaria.

Following the Six Days War in June 1967 until the implementation of the Oslo Accords (1993 to 1995), taxes were collected by Israel as part of its administration of these territories. As explained below, those taxes from the residents of Judea, Samaria, and Gaza were collected in accordance with the relevant requirements of international humanitarian law⁷ and the law applicable in Judea and Samaria (British mandatory law still in force in the area and Jordanian tax laws and Israeli law).⁸ In contrast, other taxes, such as income tax derived from the employment of Palestinians in Israel and VAT on goods purchased by Palestinians in Israel within the 1949 Armistice Lines, were collected based on Israeli domestic law.

The Change Brought on by the Oslo Accords

The Oslo Accords created the Palestinian Authority (PA) as the vehicle to implement the notion of Palestinian self-governance. The guiding notion of the Oslo Accords was that the lives of the Palestinians living in the Gaza Strip, Judea, and Samaria would be governed by the PA. To implement this vision, the Oslo Accords provided for the transfer of powers and responsibilities in the various fields of civil administration from Israel to the PA.

Since the PA, and not Israel, would, upon transfer of the powers and responsibilities, then have to provide for the needs of Palestinians resident in the areas under PA administration, it was necessary to provide a source of income and finance for the PA’s activities. To meet this need, and because the newly created PA would wield significant powers and responsibilities, Israel agreed to waive its inherent rights to collect a spectrum of different taxes.

This waiver was given to assist the PA in its governance over the Palestinians and help the PA comply with the commitments given by the PLO as part of the Oslo Accords. As such, the waiver was not an infinite, irrevocable Israeli commitment but rather a conditional waiver subject to the PLO/PA implementation of the Oslo Accords in maintaining and enhancing the day-to-day relationship with Israel.

This principle was presented in the preamble of the Protocol on Economic Affairs, which states:

The two parties view the economic domain as one of the cornerstones in their mutual relations to enhance their interest in achieving a just, lasting, and comprehensive peace. Both parties shall cooperate in this field in order to establish a sound economic base for these relations, which will be governed in various economic spheres by the principles of mutual respect of each other’s economic interests, reciprocity, equity, and fairness.

Paragraph 1 of the Protocol on Economic Affairs further clarified that the Protocol was an integral part of the Oslo Accords:

This Protocol, including its Appendixes, will be incorporated into the Agreement on the Gaza Strip and the Jericho Area (in this Protocol – the Agreement), will be an integral part thereof and interpreted accordingly. This paragraph refers solely to the Gaza Strip and the Jericho Area.

Article XXIV of the 1995 Interim Agreement similarly incorporated the Protocol into the broader agreements:

The economic relations between the two sides are set out in the Protocol on Economic Relations signed in Paris on April 29, 1994, and the Appendices thereto, and the Supplement to the Protocol on Economic Relations all attached as Annex V, and will be governed by the relevant provisions of this Agreement and its Annexes.

Within the wider implementation of the Oslo Accords, it is possible to identify two fundamental phases. The first phase, implemented in May 1994, pursuant to the Agreement on the Gaza Strip and Jericho Area, provided for the redeployment of the Israeli forces and the initial transfer of powers and responsibilities regarding certain areas in the Gaza Strip and the city of Jericho in Judea and Samaria, to the PA. The second phase, implemented in December 1995 and January 1996 under the Interim Agreement, provided for the redeployment of the Israeli forces from additional areas in Judea and Samaria⁹ and the completion of the transfer of powers and responsibilities to the PA. Upon implementation of these phases, 96% of the Palestinian population residing in Judea, Samaria, and the Gaza Strip came under the authority of the PA.¹⁰

The phases of implementation, redeployments, and transfers of powers and responsibilities pursuant to the periodic agreements also guided the stages of Israel’s waivers over the tax income.

What Taxes Does Israel Transfer to the PA?

The four main categories of taxes that Israel agreed to waive in favor of the PA are as follows:

1. Import taxes – taxes paid on goods ordered by Palestinians from abroad;

2. Excise duties (fuels) – taxes paid on fuels ordered by Palestinians and imported from abroad;

3. Value Added Tax (V.A.T.) – taxes paid on goods ordered by Palestinians from Israel;

4. Income tax – taxes paid on income derived from employment;

Import Taxes

As noted above, from 1948 till 1967, the Gaza Strip was controlled by Egypt under military rule.¹¹ While the subject had often been considered, Gaza had no independent port.¹² Thus, all goods going into Gaza during that period entered via Egypt. To the extent that people living in the Gaza Strip were able to order goods from abroad, they paid import duties, where applicable, to the Egyptian authorities.

During that period, Judea and Samaria was controlled by Jordan. Since those areas were surrounded on one side by Israel and could only be accessed through Jordan, all goods going into Judea and Samaria during that period entered via Jordan. To the extent that people living in Judea and Samaria were able to order goods from abroad, they paid import duties, where applicable, to the Jordanian authorities.

Starting in 1967, when Gaza, Judea and Samaria came under Israel’s control, Israel enabled the Palestinian residents of those areas to order goods from abroad that would enter through the Israeli ports. These goods were subject to Israeli import taxes. Thus, before the conclusion and implementation of the Oslo Accords, people living in Gaza, Judea and Samaria who ordered goods from abroad paid import taxes to the Israeli authorities.

To identify potential sources of income for the nascent PA, the Protocol on Economic Relations agreed, as part of the wider agreed principles regarding import taxation and policy, that Israel would continue to collect these taxes and transfer the income to the PA.

To give effect to the waiver, Israel agreed to amend its import taxation regulations and implement a system “based on the principle of final destination.”¹³ In other words, Israel agreed to collect, waive, and transfer to the PA all import taxes on goods whose final destination were in the areas that would come under the control of the PA. The desire and willingness to assist the PA was so deep that Israel even agreed to waive the import taxes paid by Israeli importers “when the final destination explicitly stated in the import documentation is a corporation registered by the Palestinian Authority and conducting business activity in the Areas [transferred to the control of the PA – M.H.].”¹⁴

In the agreed “Supplement attached to Protocol on Economic Relations,” the PLO expressly agreed that Israel deducts “3% from each transfer to the Palestinian side of import taxes and other indirect taxes, in order to cover Israel’s administrative costs in collecting these taxes and in handling matters related to them.”¹⁵

Since the implementation of the Oslo Accords, as a reflection of the growing strength of the economy, Palestinian residents of the areas under the PA’s control have ordered ever-growing quantities of goods from abroad. The growth of imports is reflected in the increase of import tax income.

While comprehensive historical data showing the full extent of this waiver is unavailable, information provided by the Israeli Ministry of Finance regarding the period starting January 2010 through August 2023 shows that under this category, Israel collected on behalf of the PA a cumulative sum of 43,489,353,527 shekels, as shown in the following chart:¹⁶

If Israel had desired, it could have waived the collection of the import taxes entirely, by exempting the residents of the PA-controlled areas who imported goods from import taxes. A decision of this nature would have transferred the onus of collecting these taxes to the PA.

This course of action was not viable for several reasons. First, it would have potentially caused economic turmoil in Israel, with goods flowing freely into the country, exempt from tax, and then creating unfair competition with the Israeli importers who still had to pay tax. Second, the PA lacked the mechanisms to ensure its own tax collection.

To mitigate these fears, Israel agreed to collect the import taxes and transfer them to the PA.

Did All the Imported Goods Actually Reach the PA?

As noted, the Israeli waiver only referred to the import taxes on goods whose “final destination” was recipients living in areas under the control of the PA. Over time, however, it would appear that this arrangement was potentially subject to substantial fraud and that, in reality, much of the goods imported, whose reported “final destination” was the PA, were diverted by the importers to Israel.

This fraud was exposed in a 2020 report¹⁷ of the Israeli State Comptroller. The report found that in 2018, only 59.1% of the imported freight cargo whose ostensible final destination was the areas under PA control, passed through the official crossing points between Israel and Gaza and Israel and Judea and Samaria into those areas. According to the Comptroller, this finding gave rise to a suspicion that considerable amounts of the goods ostensibly imported by Palestinians, never reached their PA destination and that Israel was losing hundreds of millions of shekels a year, transferring to the PA import taxes on goods that actually remained in Israel. According to the report, there was also a suspicion that Israel was subsequently losing hundreds of millions of shekels of additional income when the goods that never reached the PA were sold in Israel without the sellers paying the relevant taxes.¹⁸

Excise Duties

Excise duties are similar to import duties, just applicable to fuels. Thus, since neither Gaza nor Judea and Samaria had the independent ability to import fuels, from 1948 through 1967, people living in those areas who used fuels paid excise duties to the Egyptian and Jordanian authorities, respectively. Since 1967, people resident in those areas predominantly¹⁹ received their fuel via Israel.

Israeli companies import fuels for these areas and are required to pay excise duties.²⁰ They then sell them via contract to the PA and the companies registered in the PA.

In the Protocol on Economic Affairs, Israel agreed that the same principle of “place of final destination” applied to imported goods should also apply to imported fuels. Accordingly, based on reports of the Israeli companies and the PA regarding the amount of fuel sold to the PA and the PA companies, the Israeli authorities calculate the excise duties and transfer them to the PA.

While comprehensive historical data showing the full extent of this waiver are unavailable, information provided by the Israeli Ministry of Finance regarding the period starting January 2010 through August 2023 shows that under this category, Israel had transferred to the PA a cumulative sum of 33,910,327,615 shekels, as shown in the following chart:²¹

Had Israel desired, it could have given the Israeli importers an excise exemption for fuels destined for the PA-controlled areas and obliged the PA to collect the taxes independently. This would again have potentially created economic turmoil for Israel and forced the unprepared PA to implement a tax collection mechanism immediately.

VAT

Israel imposes VAT on a broad spectrum of goods and services.²² Since VAT is a tax paid at the point of purchase, all Israeli merchants and service providers are required by Israeli law to collect VAT on goods they sell and on services they provide in Israel.

Thus, from 1967 until the implementation of the Oslo Accords, when people resident in Judea, Samaria, and the Gaza Strip, in the areas that would eventually be transferred to the control of the PA, purchased goods in Israel, they were required to pay VAT. Like all other VAT income, this tax went straight to the State of Israel.

In the Oslo Accords, Israel again agreed to waive this tax income in favor of the PA.

In the Protocol on Economic Affairs, Israel and the PLO mutually agreed,²³ “There will be clearance of VAT revenues between the Israeli and Palestinian VAT administration…” The agreement set technical rules and regulations for the clearance that were similar to the other waivers, based on the principle of “point of destination.”

As opposed to all the other Israeli tax waivers, the VAT agreement was, theoretically, reciprocal. The final clearance required taking into account VAT paid on goods and services ordered by Israelis from people and businesses located in the areas under the control of the PA, as well as VAT paid on goods and services ordered by people and companies located in the areas under the control of the PA from people and businesses located in Israel.

Through this bureaucratic system, residents in the areas under the PA’s control could submit to the PA tax authorities’ receipts showing their purchases and the VAT paid in Israel, and residents in Israel could submit to the Israeli tax authorities’ receipts showing their purchases and the VAT paid in the areas under PA control. The two administrations would then calculate the balance of payments between the sides.

While this arrangement was theoretically reciprocal, in practice, the quantity of goods purchased from Israel by people or businesses operating in the areas under PA control always substantially outweighed the amount of goods purchased by Israelis from people or businesses operating in the areas under PA control. Accordingly, the balance of payments was always in favor of the PA.    

Taking this into account, it is clear that the Israeli waiver far exceeds the PLO/PA waiver.

While comprehensive historical data showing the full extent of this waiver are unavailable, information provided by the Israeli Ministry of Finance regarding the period starting January 2010 through August 2023 shows that under this category, Israel has transferred to the PA a cumulative sum of 28,859,090,333 shekels, as shown in the following chart:²⁴

Direct Taxation – Income Tax

As part of the Oslo Accords, Israel first waived in favor of the PA the right to collect any “direct taxation” from Palestinians living in the areas under the control of the Palestinian Authority.

The first provision of this nature appeared in Article VI(2) of the Declaration of Principles (1993 – Oslo 1), which provided:

Immediately after the entry into force of this Declaration of Principles and the withdrawal from the Gaza Strip and Jericho area, with the view to promoting economic development in the West Bank and Gaza Strip, authority will be transferred to the Palestinians on the following spheres: education and culture, health, social welfare, direct taxation, and tourism. [Emphasis added]

The Declaration of Principles was then followed by the Protocol on Economic Relations. This agreement reflected the need to cater to and financially empower the newly created PA. In doing so, it was multifaceted and encompassed several guiding principles, most relevant to our purposes, such as the authority for Israel to collect taxes on goods imported into those areas.

Under the title of “direct taxation,” the Protocol on Economic Relations clarified that each side would “determine and regulate independently its own tax policy in matters of direct taxation, including income tax on individuals and corporations, property taxes, municipal taxes, and fees.”²⁵ The Protocol then devised one of Israel’s clear waivers.

Income Tax Regime in Israel Before the Oslo Accords

Persons working in Israel, including non-residents, must pay income tax on Israeli-source income.²⁶ Israeli income tax is imposed in graduated rates ranging up to 47%. The income tax paid by non-resident employees from around the world who work in Israel is paid directly to the Israeli treasury. The Palestinian residents of Gaza, Judea and Samaria, who had been working in Israel (within the 1949 Armistice line), before and upon the initial implementation of the Oslo Agreements, were considered non-residents. Accordingly, the income tax they paid on Israeli source income, similar to all other non-resident employees, went to the Israeli treasury.

Changes in the Income Tax Regime Pursuant to the Oslo Accords

In a fundamental change to this situation, Israel agreed in the Protocol on Economic Relations to waive in favor of the PA most (75%)²⁷ of the income tax paid by Palestinian residents of Gaza and Jericho, who had been working legally²⁸ in Israel, and 100%²⁹ of the income tax paid by the Palestinian residents of Gaza and Jericho who worked in the Israeli settlements³⁰ in Gaza, Judea and Samaria.

In other words, Palestinians who were resident in Gaza and Jericho and who worked in Israel or the Israeli settlements would continue to pay income tax based on the Israel tax brackets. The sums collected by the Israeli tax authorities would then be transferred to the PA.

Israel has no similar provision that provides for the transfer of income tax paid by any other non-residents to the governments of the foreign workers.

In addition, while some of the financial agreements between Israel and the PLO/PA were reciprocal, such as the VAT provisions, this provision was one-sided. In other words, there was no parallel Palestinian commitment that required the PA to return to Israel any income tax paid by Israelis working in those areas.

Reflecting the progression of the agreements, in the first stage, this Israeli waiver in favor of the PA was specific for Palestinians from Gaza or Jericho working in Israel or in the Israeli settlements. The Israeli waiver of the income tax revenue was expanded in the 1995 Interim Agreement to include the income tax paid by all Palestinians throughout Gaza, Judea and Samaria, employed in Israel or the Israeli settlements.³¹

While comprehensive historical data showing the extent of this waiver are unavailable, information provided by the Israeli Ministry of Finance regarding the period starting January 2010 through August 2023 shows that under this category, Israel has transferred to the PA a cumulative sum of 1,261,490,999 shekels, as shown in the following chart:³²

In theory, had the PLO agreed, Israel could have given the Palestinians who worked in Israel or in the Israeli settlements an exemption from paying Israeli income tax and rolled the onus to collect income tax onto the PA. However, this course of action would have benefitted the individual Palestinians, rather than the PA, and required the PA to establish its own tax collection system.

Gaza after the Israeli Disengagement and under Hamas Control

In 2005, Israel completed its full disengagement from the Gaza Strip, removing all Israelis and redeploying all of its military forces, and handed control of the entire area to the PA. In the 2006 PA elections, the Hamas terror organization (that more recently initiated the October 7, 2023 massacre) won the PA elections. Despite the fact that PA leader Mahmoud Abbas deposed the Hamas administration, Hamas seized complete control of the Gaza Strip in 2007.

While it is often falsely erroneously claimed and reiterated that Israel imposed a total blockade on the Gaza Strip following the Hamas takeover of the area, this is simply untrue and grossly inaccurate. In reality, despite the disengagement and the Hamas control over the Gaza Strip, goods and fuel continued to flow into the area from Israel, and Gazans continued to exit the area into Israel for a host of different reasons, including employment in Israel.

Based on data published³³ by the United Nations Office for the Coordination of Humanitarian Affairs (UNOCHA), the following chart shows the number of truckloads of goods and fuels that entered the Gaza Strip from Israel from 2008 through 2023:³⁴

On the goods and fuels that entered Gaza from Israel, the Gazans continued to pay either import taxes, VAT, or excise duties, as relevant, to Israel.

Based on the data published³⁵ by UNOCHA, the following chart shows the number of exits from Gaza into Israel from 2008 through September 2023, inter alia, for the purpose of employment:³⁶

While the PA did not control Gaza, Israel continued to transfer the income from the different taxes – import taxes, VAT, excise duties, and income tax – paid by the Gazans, to the PA.

For this reason, the PA had an increased incentive to apply political pressure on Israel to continue allowing the flow of goods and fuels into Gaza through Israel. By doing so, the PA could continue to claim that it was working in the best interests of the Gazans while simultaneously receiving substantial income for an area it did not control. For the PA, there was no incentive whatsoever to find a political solution with Egypt to facilitate the flow of goods into Gaza. Such a solution, which would potentially have been beneficial to the Gazans, was opposed to the PA’s financial interest.

In addition to the goods and fuels imported into the Gaza Strip from Israel, since 2006, the Hamas authorities and their privileged cohorts have also been able to import goods and fuels from Egypt.

While comprehensive statistics on the subject are not available, data published by UNOCHA shows that since 2008, thousands of truckloads of goods, millions of kilograms of cooking gas, and millions of liters of diesel, petrol, and fuel for the power plants have entered Gaza from Egypt, through the official crossing points, as shown in the following chart:³⁷

In addition to the official crossings, the Hamas authorities and others also operated hundreds of tunnels that crossed from Egypt into the Gaza Strip. Unknown additional goods, including large quantities of weapons and fuels, were smuggled from Egypt into the Gaza Strip through these tunnels.

Hamas kept all the taxes imposed on goods flowing into the Gaza Strip from Egypt.³⁸

Sundries

To complete the overview of this subject, it is important to address several sundry issues, as follows:

The Agreed Handling and Administration Fee

As noted above, the Oslo Agreements provided for Israel’s extensive tax collection on behalf of the PA. This function required Israel to allocate manpower and create administrative mechanisms to ensure the collection and transfer of taxes. In the Interim Agreement, the PLO agreed that Israel would charge a minimal 3% handling and administrative fee on the taxes gathered to cover these costs.³⁹

At the start of 2023, under substantial pressure from the U.S. administration, Israel reportedly⁴⁰ agreed to lower the handling fee for the excise duties on fuels from the agreed 3% to 1.5%.⁴¹ According to a report of the IDF Coordination of Government Activities in the Territories (COGAT), the reduction was implemented by September 2023.⁴²

While the PLO agreed that Israel would deduct the 3% fee “to cover Israel’s administrative costs in collecting these taxes and in handling matters related to them,” the Palestinian leadership is now claiming that these deductions are part of the Israeli “theft” of the Palestinian taxes. This distortion starts at the top. Speaking at a meeting of Palestinian faction secretary-generals, PA Chairman Mahmoud Abbas claimed,⁴³ “The occupation authorities are taking hundreds of billions from our money, which they are collecting in exchange. In other words, for every $100, they take $3. This is theft. They are stealing this money.”

According to the developing Palestinian narrative, while the PLO expressly agreed to this deduction to cover part of the expenses incurred by Israel, suddenly, Israel is being accused of theft.

The Exit Fees for the Allenby and Rafah Crossings

In the “Protocol Regarding Arrangements with Respect to Passages,” which is attached as the 5^th Appendix to Annex I of the 1995 Interim Agreement, Israel also agreed⁴⁴ to share with the PA the exit fees to be paid by Palestinians and their guests through the Allenby⁴⁵ and Rafah⁴⁶ terminals. Initially set at $26⁴⁷ per paying passenger, the exit fee would be divided equally between the sides for the first 750,000 passengers.⁴⁸ The fees for passengers in excess of 750,000 people were to be split, with $16 going to the PA and $10 going to Israel.⁴⁹

The division was based on the idea that the crossings would be jointly operated, with the presence of Israeli and PA officials. It also took into account Israel’s onus for the terminals’ maintenance and development costs.⁵⁰

While this arrangement worked initially, it was suspended soon after the start of the PA-initiated terror campaign in September 2000, when PA officials were no longer allowed to enter the terminals.

As regards the Rafah terminal, the situation changed again in 2005 when Israel disengaged from the Gaza Strip and transferred the entire governance of the Strip to the PA. Since then, PA officials, and later the officials of the Hamas terror organization, exclusively collected the exit fees. When trying to justify the sanctions that PA Chairman Mahmoud Abbas imposed on the Gaza Strip in April 2017, then PA Prime Minister Rami Hamdallah said⁵¹ that even though Hamas kept the taxes it collects for itself, the PA/Fatah government had transferred billions of shekels to the enclave over the previous decade.

While Israel has continued to invest in the Allenby terminal,⁵² the PA, which has no part in the operation of the terminal and therefore incurs no expenses, constantly criticizes Israel for not transferring the income from the passenger fees.

Income Tax in the PA

Even though the PA has the powers and jurisdiction to impose income tax on the Palestinians living under its control, it predominantly refrained from using this power. Commenting in 2022, Ramzi Oudeh, a regular columnist for the official PA daily, noted⁵³ that “A number of unofficial sources estimate the number of millionaires in Palestine to be at approximately 22,000. If a tax of 3% were imposed on their wealth, the additional intake for the Palestinian [PA] treasury could be estimated at approximately $3.5 billion per year if each rich person has approximately $5 million on average.” In practice, Palestinians working the areas under the PA control pay almost no income tax.

Israeli Law Implementing the Financial Agreements between Israel and the PA

To implement the financial agreements between Israel and the PLO/PA, Israel needed to change its legislation.

The “Law for the Implementation of the Agreement Regarding the Gaza Strip and the Area of Jericho (Financial Provisions and Sundry Provisions), 5755-1994”⁵⁴ (the First Implementing Law) was passed by Israel’s parliament in December 1994. It implemented the initial agreements reached following the Declaration of Principles, the Protocol on Economic Relations, and the Agreement on the Gaza Strip and Jericho Area.

Implementing the Waiver of the Import Taxes

Pursuant to the agreements, in addition to its other provisions and amendments to other relevant laws,⁵⁵ paragraph 13(a) of the First Implementing Law provided that Israel is permitted to collect on behalf of the PA import taxes on goods destined for the PA controlled areas, and to transfer income from those taxes to the PA.

Implementing the Waiver of the Excise Duties

Paragraph 13(b) of the First Implementing Law provided that Israel is permitted to transfer to the PA income from excise duties on fuels sold to the areas of Gaza and Jericho.

Implementing the Waiver of the Income Tax

Paragraph 14 of the First Implementing Law provided that Israel was permitted to transfer to the PA an amount equal to 75% of the income tax paid by residents of Gaza and Jericho who were legally employed in Israel.

Implementing the Waiver of VAT

Paragraph 15 of the First Implementing Law provided that if, after an accounting between the Israeli tax office and the PA regarding the VAT income, it was discovered that Israel needed to transfer funds to the PA, Israel was permitted to do so.

The legislation used the term “permitted” to indicate that these taxes had been legally collected by Israel and that permission was given to transfer the sums to the PA pursuant to the Oslo Accords.

Israel’s Right to Offset PA Debts from the Tax Income

Emphasizing Israel’s prior right to taxes, paragraph 16(a) of the First Implementing Law added that if, after an accounting between the Israeli tax office and the PA, it turned out that the PA was required to transfer funds to Israel and the PA did not do so within the time set by the agreements, Israel would automatically offset the outstanding balance from the funds transferred by Israel to the PA.

Similarly stressing Israel’s prior right to taxes, paragraph 16(b) of the First Implementing Law added that the Israeli Minister of Finance is permitted to offset from the tax income any amount that the PA or corporations under its control or administration owe to Israel or corporations under its control or administration, and to another person in Israel, if they met the criteria set by the Minister of Finance and in accordance with the provisions set.

Broadening the Waiver as Implementation of the Accords Expanded

In anticipation of the Interim agreement, and to reflect the Israeli redeployment from additional areas that would be transferred to the control of the PA, and further to the Agreement on Preparatory Transfer of Powers and Responsibilities,⁵⁶ in June 1995, Israel enacted the “Law for the Implementation of the Agreement Regarding the preparatory transfer of powers to the Palestinian Authority, (Legislative amendments and Sundry Provisions) 5755-1995”⁵⁷ (the Second Implementing Law).

Broadening the Waiver over Income Tax

Alongside other provisions, paragraph 2 of the Second Implementing Law reflected the expanding agreements between Israel and the PLO and Israel’s additional waiver not only of the income tax paid by residents of Gaza and Jericho but also of all the income tax paid by residents of Judea and Samaria who were not Israelis working legally in Israel.

Accordingly, and cumulatively with the provisions of the First Implementing Law and the Second Implementing Law, Israel was permitted to transfer to the PA all the income tax revenue paid by non-Israeli residents of Gaza, and Judea and Samaria.

Broadening the Waiver over VAT

Paragraph 3 of the Second Implementing Law similarly reflected the expanded agreement and waiver over the VAT revenue paid by all Judea and Samaria non-Israeli residents. Looking forward, paragraph 4 of the Second Implementing Law then permitted the Minister of Finance, subject to the approval of the Knesset Finance Committee, to order the transfer of additional import taxes or other taxes on goods sold to the residents of Judea and Samaria, in part or in full, and subject to conditions and rules, to the extent that would be required under the agreements between Israel and the Palestinian Authority.

Broadening the Waiver Over Import Taxes and Excise Duties

Based on the authority given to him in paragraph 4 of the Second Implementing Law, on November 12, 1995, following the signing of the Interim Agreement, and as Israel still mourned the murder of Israeli Prime Minister Yitzchak Rabin, then-Minister of Finance Avraham Shochat issued an order⁵⁸ for the additional waiver and transfer to the PA of import taxes⁵⁹ on goods destined for Judea and Samaria⁶⁰ and of excise duties⁶¹ for fuels purchased by the “Palestinian side” and transferred to Judea and Samaria. In addition, the order established the monthly transfer system and implemented the abovementioned agreement that Israel would deduct a 3% administration fee for collecting the taxes.

How Has the PA Used the Tax Income?

While Israel agreed to waive the taxes to facilitate the PA’s performance of its commitments in the Oslo Accords as part of the framework of enhancing the reciprocal relations between the parties pursuant to the Oslo Accords in practice, the PA has used the tax money in several ways that fundamentally breach the Accords.

For example, the PA has used the tax income to implement its “Pay-for-Slay” policy to pay financial rewards to terrorists. As part of the policy, the PA pays hundreds of millions of shekels a year to pay monthly salaries to terrorists who Israel has arrested and to released terrorists, and monthly allowances to injured terrorists and the families of dead terrorists.⁶² Estimated to be more than a billion shekels a year, or in some years as much as 7.47% of the PA’s operational budget,⁶³ this means that from the 107,520,262,474 shekels Israel waived in the period starting 2010 through August 2023, the PA paid almost 14 billion shekels in financial rewards to terrorists. In the Oslo Accords, the PA made repeated commitments to combat terror. Instead of using the tax income to fight terror, in reality, the PA used the money to incite, incentivize, and reward terror.

The PA also used the money to fund internationally designated terror organizations,⁶⁴ promote the campaign to gain UN recognition of the “State of Palestine,” join the International Criminal Court (ICC) as a means to prosecute Israeli leaders and IDF personnel, and even as a means to increase the international real estate portfolio of the PLO.⁶⁵

Conclusion and Suggested Changes of Policy

When Israel entered the Oslo Accords, it did so with the genuine intention of promoting peace. To facilitate the operation of the Palestinian Authority, the body created by the Accords as the vehicle to implement Palestinian self-rule, and to provide the PA with substantial income, Israel agreed to waive several taxes in favor of the PA. Over the years, the PLO/PA has done its utmost to persuade the world that the taxes it receives from Israel are almost a God-given Palestinian right while simultaneously breaching nearly every commitment made to promote peace and combat terror.

This document aims to present the background to Israel’s waivers and set the record straight.

Despite the developing reality, Israel has continued to uphold its commitments, providing the PA, at the very least since 2010, with over 107.5 billion shekels. Instead of using the money to promote peace, the PA has used the money to incite, incentivize, and reward terror, to fund internationally designated terror organizations, and to fund sundry other campaigns that undermine and breach the commitments made by the PLO/PA.

After 30 years of implementing the Oslo Accords, Israel must now reconsider its actions.

The Palestinian leadership has repeatedly demonstrated that for them, the Oslo Accords were merely empty documents. They have taken the money that Israel agreed to waive to promote peace and used it to undermine the Oslo Accords systematically and to foster hatred and animosity. They are even manipulatively trying to use Israel’s gestures and waiver as a means to attack Israel.

Providing the PA with ever-growing income is undermining Israel’s national security. In practice, Israel is funding not only the PA’s terror reward policy but also all of the other nefarious Palestinian practices.

Accordingly, it is time for Israel to reconsider its waiver policy. Rather than unthinkingly transferring income to the PA, with the full knowledge that the PA will use the funds to breach its commitments fundamentally, Israel must devise and implement a performance-based approach.

To do so, Israel should present the PLO with an ultimatum: Revoke the Pay-for-Slay policy, cease all incitement as it is committed to under the Oslo Accords, cease funding and rewarding terror pursuant to its obligations in the Oslo Accords, cease its attempts to receive recognition for the “State of Palestine,” which is a fundamental breach of the Oslo Accords commitment as set out in the Final Clause (Article XXXI(7) not to alter the status of the territories pending the outcome of the permanent status negotiations, and immediately withdraw from the ICC and revoke its referrals against Israeli officials and officers.

If the PA does not comply, Israel should stop transferring all the tax income it agreed to waive and consider further sanctions.

Annex 1

Import taxes waived by Israel in favor of the PA:

Import taxes waived by Israel in favor of the PA66
Year	Cumulative sum collected
2010	1,629,906,963
2011	1,803,403,278
2012	1,984,848,725
2013	2,073,427,596
2014	2,520,411,210
2015	2,922,380,724
2016	3,167,004,206
2017	3,353,709,974
2018	3,472,314,924
2019	3,693,690,511
2020	3,873,906,461
2021	4,549,254,509
2022	4,968,769,938
2023 (through August)	3,476,324,508

Excise duties waived by Israel in favor of the PA:

Excise duties waived by Israel in favor of the PA67
Year	Cumulative sum collected
2010	1,639,510,308
2011	1,636,871,372
2012	1,758,145,008
2013	1,970,530,654
2014	2,474,240,420
2015	2,773,867,427
2016	2,970,927,425
2017	2,903,505,132
2018	2,481,102,543
2019	2,372,980,472
2020	2,364,346,148
2021	2,595,056,305
2022	3,367,734,389
2023 (through August)	2,601,510,012

VAT waived by Israel in favor of the PA

VAT waived by Israel in favor of the PA68
Year	Cumulative sum collected
2010	1,503,391,399
2011	1,621,956,991
2012	1,872,302,023
2013	2,016,462,205
2014	2,278,566,947
2015	2,276,326,571
2016	2,186,221,832
2017	2,288,038,851
2018	2,003,596,210
2019	2,136,507,730
2020	1,820,446,805
2021	2,080,209,834
2022	2,820,050,880
2023 (through August)	1,955,012,055

Income tax waived by Israel in favor of the PA

Income tax waived by Israel in favor of the PA
Year	Cumulative sum collected69
2010	13,822,869
2011	29,467,491
2012	8,821,284
2013	39,881,233
2014	48,955,379
2015	23,265,370
2016	35,963,211
2017	180,202,207
2018	71,047,950
2019	206,692,074
2020	76,227,530
2021	260,045,247
2022	188,157,211
2023 (through August)	78,941,943

Trucks and fuel entering Gaza from Israel:

	Trucks entering Gaza from Israel	Fuel entering Gaza from Israel
		Diesel & petrol (liters)	Cooking gas (kg)	Gaza Power Plant (liters)
2008	26,834	N/A	N/A	N/A
2009	30,566	N/A	N/A	N/A
2010	39,630	3,670,000	38,150,000	69,740,000
2011	49,283	2,630,000	34,230,000	7,199,700
2012	57,441	7,520,000	33,800,000	24,530,000
2013	56,373	42,080,000	39,080,000	8,110,000
2014	47,590	149,360,000	51,100,000	65,730,000
2015	94,036	192,560,000	58,600,000	85,730,000
2016	119,002	224,070,000	60,090,000	81,800,000
2017	116,634	198,050,000	65,460,000	33,530,000
2018	101,088	131,180,000	47,690,000	30,010,000
2019	95,572	72,000,000	9,910,000	140,140,000
2020	96,651	38,840,000	11,830,000	143,270,000
2021	80,361	22,990,000	4,340,000	134,570,000
2022	74,096	15,660,000	29,110,000	145,760,000
2023	60,033	12,920,000	25,900,000	122,080,000

Exits to Israel from Gaza:

	Number of exits to Israel
2008	26,272
2009	28,150
2010	40,549
2011	52,875
2012	60,697
2013	70,760
2014	73,241
2015	183,237
2016	157,142
2017	82,809
2018	114,795
2019	191,826
202070	59,901
202171	90,421
2022	424,417
2023	437,794

Trucks and fuel entering Gaza from Egypt:

	Trucks entering Gaza from Egypt	Fuel entering Gaza from Egypt
		Diesel & petrol (liters)	Cooking gas (kg)
2008	4	N/A	N/A
2009	556	N/A	N/A
2010	N.A.	N/A	N/A
2011	N.A.	N/A	N/A
2012	79	N/A	N/A
2013	8,749	N/A	N/A
2014	4,083	N/A	N/A
2015	729	N/A	N/A
2016	1,439	N/A	N/A
201772	1,875	11,250,000	N/A
2018	5,083	62,820,000	18,820,000
2019	7,589	106,330,000	60,300,000
2020	9,742	109,890,000	63,840,000
2021	14,974	144,530,000	73,730,000
2022	32,353	159,880,000	62,800,000
2023	36,016	121,700,000	49,990,000

* * *

Notes