A decree published two weeks ago by the Palestinian Authority (PA) president Mahmoud Abbas (Abu Mazen) states that starting in the fall of 2018, residents of the Gaza Strip will lose the tax exemption they have enjoyed in recent years. They will start paying 20% income tax, land taxes, 17% VAT on all products, and customs duties on goods will be raised steeply. For example, customs duties will rise from 6% to 15% on clothing, from 12% to 27% on shoes, from 12% to 20% on furniture, among other burdensome decrees.
The decree requires approval by the Palestinian parliament, which is scheduled to discuss it in its next session. It will be disastrous for the Gaza Strip economy, and Abbas is aware of this, so the explanation for it is simple. The PA president is using economic pressure and a reduction in the Gaza Strip residents' already low standard of living to overthrow Hamas, his great Palestinian rival. There are good reasons to believe that he will succeed.
In April 2017, the PA unexpectedly notified Israel that it would no longer pay for the electricity that Israel was supplying to residents of the Gaza Strip. This meant that a third of the electricity needed by the Gaza Strip (actually, more than half, because the other electricity suppliers do not function properly), 125 megawatts, stopped flowing from Israel Electric Corporation (IEC) (TASE: ELEC.B22) to the Gaza Strip's power lines. The supply of electricity to the homes of Gaza Strip residents' homes was cut to a few hours a day - only 2-6 hours, depending on the production of the other source - the Gaza Strip power station. Bitterness and protest among Gaza Strip residents increased. The Hamas government suppressed attempts at demonstrations and arrested journalists and critics, but eventually realized that it would be unable to continue without a change. What was the change? Putting the responsibility on someone else - the PA.
Abbas's measure began to produce results. Late last summer, rumors circulated of a renewal of the reconciliation talks between Fatah (the ruling organization in the PA) and Hamas. The talks were officially announced in September, and in October 2017, a reconciliation agreement was signed in Cairo under the auspices of Egyptian President el-Sisi. A similar agreement between the two organizations signed in 2011 failed. The new agreement states that the government in the Gaza Strip is being returned to the PA, and deals mainly with civilian authority and management. The main problems - control of the border crossings and Hamas's military power - were left for follow-up discussions. These follow-up discussions, however, have produced no real results. Hamas refuses to disarm its militias or subject them to the PA security agencies, and it also still controls all of the border crossings to some extent.
Abbas, currently in the midst of a crisis with US President Trump, who is threatening to cut economic aid to the PA, is citing this cut as the reason for the presidential order he published. The order declares an economic emergency, and states that it is imposing the same taxes on the Palestinians in the Gaza Strip as on those in the West Bank as part of the creation of a single undivided economic unit.
Palestinian economists, however, disagree with him. Mahmoud Abu-Jeeb, editor of Palestinian economic newspaper "Al Iqtisad," says that the decision ignores the economic situation in the Gaza Strip, which is materially different than in the West Bank. According to him, not only will the plan not bring economic stability, but the PA will go bankrupt. Mohammed Ayeshi, professor of economics at the Islamic University in the Gaza Strip, says that the 70,000-100,000 Palestinians in the West Bank working in Israel give the economy there its main growth engine, which the Gaza Strip lacks. Most sectors, which are already stagnating, will face collapse, and people will be unable to pay the taxes.
Both Abbas and the economists of the PA Ministry of Finance and government are aware of the figures, and of the lack of realism in imposing such a heavy tax burden on the Gaza Strip's economy. The obvious conclusion is therefore that the measure is designed to bring Hamas to its knees and cause it to completely surrender its rule in the Gaza Strip. An Israeli security source also mentions the possibility that Abbas is using the severe humanitarian crisis in the Gaza Strip, which he himself is aggravating, as an international diplomatic tool to raise aid money from the other Western countries. These countries almost completely halted their aid to the Gaza Strip after Hamas took power in the summer of 2017.
Tightening the Gaza Strip blockade
Israel is playing a role in this internal Palestinian conflict. When Hamas staged its coup, Israel canceled all permits for laborers from the Gaza Strip to work in Israel. This work was the main source of income for the Gaza Strip economy - to an even greater extent than in the West Bank. The border crossings were also closed to the passage of goods, and were reopened with many restrictions that caused a 95% drop in the volume of goods. The border crossings are closed again according to security and other needs, as in the case of the Kerem Shalom border crossing, which was reopened last week after the detection and destruction of Hamas's terror tunnel underneath it. The closure of course resulted in deterioration in the economic and humanitarian situation in the Gaza Strip, and the military confrontations with Hamas, following the shooting of rockets at Israel, have also greatly worsened the situation on the ground.
In the summer of 2014, following the end of Operation Protective Edge, Israel signaled a change in attitude, albeit only a verbal one, towards the residents of the Gaza Strip. IDF officers, officials, and ministers spoke about the economic reconstruction of the Gaza Strip, even though Hamas, a terrorist organization, rules there. Then-IDF Chief of Staff Benny Gantz told Galei Tzahal (Army Radio), "We will help in reconstruction, and not only out of strategic considerations. We will also help in the humane aspect of reconstruction. We have nothing against the Gaza Strip residents. The combination of the necessity to fight on the one hand and the effort to avoid damage and help as much as possible on the other is the morally, practically, and strategically right thing to do." Then-Minister of Defense Moshe Ya'alon said, "There is definitely a need to relieve the pressure and enable the Gaza Strip residents, not Hamas, to live with dignity. 120,000 people were made homeless by the operation in the Gaza Strip. They paid a heavy price. They should be allowed to earn a living, and it is therefore in our interests to facilitate these measures."
These statements have continued in recent years. Leaders and bureaucrats in Israel repeated the mantra of assistance, mainly for infrastructure, and Ariel Ezrachi, the Israeli representative to the Quartet talks on energy matters, told "Globes" 18 months ago, "Turkey, like other countries, including Qatar and European countries, wants to help rebuild infrastructure in the Gaza Strip, and Israel also understands now that this is in its interest, because the state of water, electricity, and sewage in the Gaza Strip is also affecting us. It's a win-win situation for both sides."
In practice, however, the actual figures show a completely different picture. There was some change in 2014 and 2015. Israel made it easier to obtain permits for passage, mainly for merchants and businesspeople, but also for goods of various types, in addition to allowing larger quantities of raw materials and infrastructure materials to enter as part of the aid in repairing the results of Operation Protective Edge in the Gaza Strip. Towards the end of 2015, however, a real change took place. Permits for the passage of goods and people through the border crossings have been drastically reduced, According to the Office of the Coordinator of Activities in the Territories, 31,642 permits for entry into Israel were issued to Gaza Strip residents in 2015, 17,902 in 2016, and only 5,490 in 2017.
According to figures from the Gisha organization, which deals with the situation in the Gaza Strip, the number of Palestinians exiting through the Erez border crossing plummeted 53% in 2017, compared with 2016. The monthly average number of people exiting in 2017 was only 5,693, compared with 12,150 in 2016 and 14,276 in 2015. For the sake of comparison, in 2000, when the PA ruled the Gaza Strip and permits to work in Israel were issued to Gaza Strip residents, half a million Palestinians entered Israel from the Gaza Strip each month, mostly workers.
According to figures from the Palestinian Civilian Committee, as of December 2017, there were 551 valid merchant permits, 85% fewer than the over 3,500 valid permits at the end of 2015. Those refused permits include leading veteran businesspeople who have been doing business in the West Bank and Israel for many years. Merchant permits enable their holders to leave the Gaza Strip in order to create professional connections and take advantage of business opportunities.
Israel as a subcontractor in the conflict
Ostensibly, Israel controls the economic lifeline to the Gaza Strip. It sets the rate at which good and people pass through the border crossings, supplies electricity, and so forth. In practice, however, it serves as a subcontractor in the internal Palestinian conflict. How? The electricity issue demonstrates it. Abbas halted electricity payments, and Israel, the supplier, stopped (for the most part) supplying electricity. This is not an isolated example. In order to obtain a permit to cross into Israel, Gaza Strip residents apply to the regional committee in the Gaza Strip, which is controlled by the PA. According to Israeli sources, most of the decrease in the number of permits occurs because Abbas's people are not forwarding the permit requests to Israel.
Another reason for the small number of permits is security. Defense sources say that Hamas is taking advantage of the permits for terrorist activity, whether directly, such as the attempted terrorist attack by a woman resident of the Gaza Strip in April 2017 at the Erez border crossing, or by sending messages, money, and information to Hamas terrorist squads in the West Bank and Jordan.
This Israeli stance, however is a little disingenuous. Abbas cannot exert this economic pressure on the Hamas without Israel's cooperation and tacit consent. This policy can be regarded as completely legitimate. Why go to war and pay a price in the lives of Israeli soldiers when Hamas rule in the Gaza Strip can be overthrown through economic pressure? The price, of course, is the looming economic and humanitarian disaster in the Gaza Strip. As it has always done, Hamas is using the residents of the Gaza Strip as hostages against Israel. The PA is using them as hostages against Hamas, and our policymakers must think and decide when they will cross the red line and be obliged to take massive action for moral, but also security, health, and other reasons.
Meanwhile, Israel is justifiably accusing Hamas of spending enormous sums on improving its military capabilities ($260 million in 2017, according to Israel Ministry of Defense figures), instead of using it for civilian economic purposes.
Your home will be destroyed by the boomerang: After UNRWA, the US will cut aid to the PA
A senior US official told "Globes" that the PA's diplomatic conflict with the Trump administration and its escalation in recent days will cost the Palestinians dearly. According to the official, a $125 million cut in aid to the United Nations Relief and Works Agency (UNRWA) has already been decided, half of the planned transfer for January and a third of the annual transfer.
In practice, UNRWA, which is responsible for dealing with Palestinian refugees, is perpetuating the refugees' status as a matter of policy, and because of the policy of the Palestinian leadership. UNRWA is not trying to resettle and rehabilitate the refugees, as other UN refugee organizations do. Due to the expected cut, UNRWA laid off 100 of its employees in refugee camps in Jordan last week.
The US official told "Globes" that the administration sees eye-to-eye with Israel on the severe problems with payments made by the PA to terrorists and their families. In addition, following the declared Palestinian policy in recent weeks and Abbas's attacks in his recent speeches, the administration in Washington is considering a real reduction in its direct aid to the PA. He added that other parties in the PA, main those dealing with security questions, had warned that a cut in the budget for the PA's security organizations would cause their collapse, giving rise to real concern about the PA's stability, and also about an end to security cooperation with Israel.
A study by the Jerusalem Center for Public Affairs, headed by Brigadier General (reserves) Yossi Kuperwasser, found that through the Palestine Liberation Organization (PLO), the PA was directly paying, partially since 2014, enormous sums (NIS 1.1 billion - $300 million) to Palestinian terrorists in prisons and after their release, to their families, and to the families of Palestinians killed in the struggle against Israel. These payments, which make up 7% of the PA budget and more than 20% of the international aid granted to it, encourage terrorism. They openly appear in the PA budget.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 22, 2018
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