BICOM

What happened: An eight-month standoff between the Palestinian Authority (PA) and Israel over the transfer of tax revenues held by Israel has reportedly been resolved after the PA agreed to accept tax payments contingent on joint committees resolving technical issues.

• The crisis dates back to February and the implementation of a new Israeli anti-terrorism law that deducted $12m per month from the amount in taxes it transfers to the PA, due to the Palestinian practice of making payments to prisoners convicted of terrorist offences and payments to the families of individuals killed while carrying out terrorist attacks.
• The PA in response refused to accept any tax transfers from Israel –  $180m per month, the bulk of its budget – throwing the West Bank into economic turmoil.
• After meetings last week between Israeli Finance Minister Moshe Kahlon and PA Civil Affairs Minister Hussein al-Sheikh, the PA agreed this week to accept $500 million in withheld tax money, despite Israel continuing to make the tax deductions.
• In late August, the PA agreed to accept $556m in fuel import taxes held by Israel, alleviating some of the financial crisis.

Context: As part of the economic annex to the 1994 Oslo Peace Accords (called the Paris Protocol), Israel and the PA are connected economically by a joint customs union. Every month Israel transfers to the PA tax revenues – including on fuel imports – it collects on goods entering the West Bank and Gaza Strip.

• The PA had been thrown into financial crisis due to its refusal to accept any tax transfers: for the past eight months government austerity measures have been implemented, banks have strained under increased borrowing, and PA civil servants (including 30,000 security force personnel) have not received full salaries. Israeli security officials warned of increased unrest in the West Bank if the crisis was not resolved.
• The Israeli-PA technical committees will reportedly meet to discuss permanent changes to the Paris Protocol, a long-standing Palestinian demand. The PA said payments to prisoners will continue and a senior official said: “We are determined to pay their dues at all costs.”

Looking ahead: The decision to end the standoff with Israel and accept the tax transfer money was a major climb down for Palestinian President Mahmoud Abbas. Nevertheless, Abbas exhibited pragmatism given the PA’s worsening economic situation and the fact that any amendment to the Israeli anti-terrorism law will require a new Israeli government to be formed – something that could take months.