The Oslo Agreement of 1993 extended a promise of self-governance to the Palestinian Authority, allowing control over aspects such as direct taxation, education, social welfare, tourism, and healthcare. This signified the possibility of future negotiations addressing crucial issues like Palestinian refugees, Israeli settlements, borders, and other unresolved matters. However, these negotiations never came to fruition. Our research examines whether Israel has indeed allowed Palestinians to have any authority over the agreed-upon areas, focusing specifically on tax revenues. Oslo II, comprising seven annexes, established the framework for governing these relations.

Our primary focus centres on tax collection and revenue sharing, particularly in the context of indirect taxes and VAT. According to agreements, these taxes are collected by the Israeli state through a joint revenue clearance system, with revenue transfers occurring after monthly meetings to reconcile accounts between the two parties. This arrangement led to the creation of the primary revenue source for the Palestinian government, known as clearance revenues, comprising more than 60% of government income. Clearance revenues encompass customs duties, VAT, petroleum excise, health fees, and income tax levied on Palestinian laborers working in Israel. Israel charges Palestine a 3% service fee for acting as the collecting agent. Given this reliance on Israel, Palestine requires robust and transparent accountability mechanisms. Our research finds Israel has demonstrated a complete disregard for transparency and accountability in the revenue-sharing process, effectively controlling the Palestinian state’s budget according to its wishes.

Untraceable Deductions
Revenues accumulate in the Israeli treasury. Israel deducts bills for electricity, water, health, sewage, and court orders before sending a net revenue amount to Palestine. Israel is supposed to discuss and explain these deductions with the Palestinians. However, interviews and documentation indicate minimal to no discussions regarding these deductions and Israel has not allowed any challenges to these deductions. Furthermore, as our work revealed Palestine risks receiving no revenues if they challenge these deductionsand they are left with no choice but to accept them. UNCTAD (2015) confirmed that Israel deducted 20% of clearance revenues against water, electricity, and medical bills, with an original intention to deduct 40%. As a recent IMF report highlights, there is a pressing need for greater transparency regarding these deductions, calling for detailed reports on deducted amounts.

Palestine is compelled to cover hospital, electricity, and other bills over which they have no control. Additionally, they lack choices in selecting electricity providers or hospitals due to imposed restrictions. The combination of jurisdictional constraints and a lack of transparency in revenue management not only costs Palestine money but also weakens its internal accountability system. Deductions are made unilaterally, leaving Palestine with little control over its expenditures and income. Palestine remains uncertain about the revenue it will receive, as expenses subject to deduction remain undetermined, contrary to expectations outlined in the peace agreements.

Refusals of Revenue Transfer and Transparency
In addition to these challenges, Israel leverages its control over Area C to withhold revenue from Palestine. Area C constitutes 61% of the West Bank and Gaza territories, and according to binding obligations, it should have been transferred to Palestinian control by 1997. However, Israel maintains direct control over the area, limiting Palestinian access and utilization of its natural resources. The transfer of Area C revenues was halted in 2000 during the Second Intifada and has not resumed since. Despite international calls, Israel has refused to comply (IMF, 2022, p.18).  This lack of transparency and accountability further exacerbates Palestine’s financial challenges.

An important aspect of ensuring transparency in revenue sharing was the agreement on a computerised invoice system, however, Israel has consistently refused to implement this system when it comes to Palestinian invoices. This refusal has significant implications for fair revenue sharing and Palestine’s internal accountability system. Over the years, the lack of accountability and transparency in the revenue-sharing system, along with disregard for the revenue protocol, has seriously undermined the financial accountability of Palestine. Reliance on manual VAT procedures and falsified invoices by traders exposes Palestine to fraud and tax evasion.

These examples illustrate how Israel undermines the fundamental structures of accountability and weakens Palestinian sovereignty. Israel’s actions result in the accumulation of tax revenues, enabling the expansion of settlements and the maintenance of fiscal balance while neglecting development expenditures for the Palestinian population. Israel’s restrictions on trade and investments force Palestine to buy services from Israel. This further exacerbates the power imbalance, leaving Palestinians in a state of permanent dependence and at the mercy of Israel.