Theft and Blackmail: Israel Blocking Transfer of Palestinian Funds

Many things are going to be overshadowed at least for a few days by the big news of Osama bin Laden’s death. One of them, though in the headlines in Israel, was already getting less attention than it deserved.

The scandalous announcement by Israel’s Minister of Finance, Yuval Steinitz (Likud) that Israel was going to stop payment of taxes levied on behalf of the Palestinians as punishment for the Fatah-Hamas unity dealis nothing short of grand larceny.

Israeli Minister of Finance Yuval Steinitz

On the surface, it might seem to make sense, even if one disagrees with it as a tactic. The argument would be that the PA now encompasses a terrorist organization and Israel would be within its rights to block the funds flowing to that government as they might be diverted for militant uses. After all, doesn’t the US freeze assets of terrorist groups? What’s the difference?

Well, there’s a big difference.

The funds that Israel is withholding are comprised of Value Added Taxes (VAT) and other levies which Israel collects on behalf of the PA, under the Oslo Accords. Sounds like Israel is doing the Palestinians a favor, doesn’t it?

But when you think about how this state of affairs came to be, a different picture emerges.

When Israel took over the West Bank in 1967, it obviously assumed responsibility for basic services in that area. No one was praising the job they did, to be sure, but services were delivered throughout the Occupied Territories. That was the case until 1994.

In that year, the Palestinian National Authority was formed, and the West Bank was divided into four sections: Areas A, B and C and East Jerusalem. Basic civil services in Areas A and B as well as in Gaza were handled by the Palestinian Authority, and this is true to this day.

But the PA’s ability to collect taxes is severely limited. The VAT on imports to the West Bank is collected at Israeli ports. Israel is also supposed to send back the value-added tax that Palestinians pay for Israeli goods, as well as any excise taxes that Palestinians have to pay for fuel, cigarettes, and alcohol. Continue reading