Study Reveals Tax Collection in Arab Cities on the Rise

Tax collection in Arab municipalities rose by 40 percent in 2008 as compared with 2005, according to research released last week by Dirasat, the Arab Center for Law and Policy. The findings were presented at a conference of Arab council leaders.

The research, based on Interior Ministry data, suggests only a small minority of actual residents owe municipal tax. It also reveals that just 0.2 percent of municipal taxes from government facilities are paid to local Arab councils.

According to the study, carried out by Dr. Rafiq Haj, collection rates in Arab areas went from 18.6 percent in 2005 to 30.2 percent in 2008. Despite the rise, this rate still falls significantly short of Jewish areas, where collection reaches 65.5 percent.

"It doesn't meant 70 percent of the people evade taxes," said Haj. "Often, the bulk of the municipal-tax debt rests with a particular group. In Sakhnin, 60 percent of the debt is owed by 21 percent of the population."

"Since this is such a small percentage of debtors, it's easier for council heads to enforce collection and not enact sanctions against the entire community," he added.

Haj attributes the rise in collection rates to public coffers in many local authorities running out of money, and therefore no longer able to provide basic services like garbage collection and water supply. He said a number of steps taken by the Interior Ministry, such as conditioning balancing grants on higher tax collection rates and assigning accountants to many of the local councils had also helped increase tax enforcement.

According to Haj, the remaining gap between Jewish and Arab municipalities stems from a number of socioeconomic factors. "There's a relationship between the collection rate and the socioeconomic level - when one goes up, the other goes up as well," he says. "Eighty-two percent of Arab municipalities in Israel are ranked 1 to 3 on a scale of 10 [socioeconomically speaking]."

He noted that an average Arab family's municipal tax comprised a higher percentage of the family income than that of an average Jewish family. "An Arab family pays 6.9 percent of its average income to municipal tax, as opposed to an average Jewish family that pays 4.5 percent," he said.

"When the economic load is greater, priorities shrink," Haj explained. He added that the low collection rates were also due to the meager level of services provided by the local councils as well as the popular perception that tax money was spent not on services, but on appointments and corruption.

The study also examined different communities' "social capital" - a term describing diversity and neighborly relations between the residents. The findings suggest that the better the relationship between residents, the higher the collection rates. Villages united under regional councils, which are mostly small and homogenous, and within which residents maintain tighter bonds, show a collection rate of up to 55 percent; larger and more "alienated" Arab cities only reach 20 percent.

But collection rates are also influenced by factors outside the residents' direct control - such as the existence of commercial and industrial zones, which pay a considerable amount of tax. Such zones rarely exist in Arab municipalities, by government policy.

"Only 0.2 percent of government-owed municipal tax goes to Arab councils, while the rest goes to Jewish ones," said Dirasat director Dr. Yousef Jabareen. "All of the tax from the government compound in Nazareth, for example, goes to the municipality of Upper Nazareth, despite the fact that the compound straddles the border with Nazareth. This income should be divided equally."