Israel, Palestinian Authority Reach Compromise Over Frozen Tax Revenue

In end to crisis, Palestinians agree to sums withheld from tax revenues to offset debts to Israel Electric Company; the two sides will continue discussing future payment obligations.

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Palestinian President Mahmoud Abbas before a speech in the West Bank city of Ramallah.
Palestinian President Mahmoud Abbas before a speech in the West Bank city of Ramallah.Credit: AFP

Israel and the Palestinian Authority reached a compromise agreement on Friday that will effectively end the crisis regarding the tax revenues that Israel has been withholding from the PA, as well as the crisis regarding Palestinian debt to the Israel Electric Company, Haaretz has learned.

The Coordinator of Government Activities in the Territories, Maj. Gen. Yoav Mordechai, met on Friday with his Palestinian Authority counterpart. Their meeting resulted in the Palestinians agreeing to receive the tax revenue withheld by Israel from December to February as a result of the Palestinian effort to join the International Criminal Court in The Hague.

The Palestinians also agreed to a "major offsetting" of roughly half a billion shekels that Israel withheld from tax revenues collected between December and February, meant primarily to repay debts to the Israel Electric Company.

According to an understanding reached between the two sides, Israel will significantly reduce the amount withheld from March and April tax revenues to offset the Palestinian debt. Going forward, Israeli and Palestinian representatives will continue to discuss the remaining debt as well as both sides' obligations.

The initial transfer of 1.5 billion shekels - minus 500 million shekels to pay electricity debt - represents the tax revenues collected for the months of December, January and February. Tax revenue collected by Israel for the PA during March and April amounts to an additional 1 billion shekels. 850 million of which will be transferred to the PA, with the rest used to further offset Palestinian electricity debt. As a result of the compromise agreement, the Palestinian Authority has agreed to accept a total of 1.85 billion shekels.

On March 27, a week and a half after the Israeli election, Prime Minister Benjamin Netanyahu acted on recommendations from defense officials and decided to transfer roughly 1.5 billion shekels ($383 million) in tax revenue that was withheld following the Palestinian bid to join the International Criminal Court in The Hague.

Netanyahu's decision followed significant pressure from Israeli defense officials, as well as the United States and the European Union, in light of the dire financial straits in the West Bank, and fears that the economic crisis would lead to chaos or the collapse of the Palestinian Authority. Netanyahu's decision to transfer the funds also followed his election win, which effectively released him from domestic political considerations.

After Israel announced that it would release the funds, however, the Palestinians refused to accept them amidst claims that Israel had decided to withhold a relatively large portion of the funds to offset some of the Palestinian debt to the Israel Electric Company, which sits at roughly 1.5 billion shekels.

Palestinian President Mahmoud Abbas said then that the Israeli decision to withhold such a large amount of the tax revenue to offset the debt was made unilaterally, without any Palestinian involvement, and in violation of agreements between the two sides. Abbas even threatened to seek international mediation, or assistance from the International Criminal Court in The Hague should Israel withhold the funds.

Despite the Palestinians' refusal to receive the funds, Israel unilaterally transferred tax funds collected in December, January and February, but withheld half a billion shekels to partly offset the electricity debt. A few days later, Abbas claimed that he had issued an order to return the funds because Israel withheld a third of the amount – 500 million shekels out of 1.5 billion. "Either they return the full amount to us, or we'll seek international mediation, or the ICC," Abbas said then.

Palestinian Prime Minister Rami Hamdallah said that there has been recent contact between joint Israeli-Palestinian economic committees looking into PA debt owed to Israeli companies, in order to avoid unilateral moves to offset debt by withholding funds, as Israel has done in recent months.

PA officials also noted that after the tax revenues are transferred in full, debts to Palestinian Authority officials will be paid after months of receiving only partial salaries. PA employees should receive their April salaries in full.

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