Effects of the Coronavirus Pandemic on the Palestinian Economy

It has become clear, and in order to show the impact of the Corona pandemic on the Palestinian economy, that we must examine the data of net total revenues for the period 1-1-2020 through 31-7-2020 and compare them with the corresponding period of 2019 (from 1-1-2019 through 31-7-2019), which were reported in the statements and statistics of the Ministry of Finance and Planning in Ramallah, where it appears that total domestic revenues in Palestine, which we will discuss only, usually constitute 39% of net total revenues, and domestic revenues generally consist of local tax revenues and non-tax revenues. Their value for the period between 1-1-2020 and 31-7-2020 decreased by 366 million shekels compared with the same period of 2019, as shown in the following explanation:

-       (Local) local tax revenues up to 31-7-2020, which normally represent an annual rate averaging 62% of total local revenues, fell: they decreased by 93 million shekels, including a decline in income tax for the first seven months of 2020 of 63 million shekels; value-added tax revenues also fell by 53 million shekels, and customs revenues fell by 48 million shekels. However, cigarette excise increased by 71 million shekels…!! Property tax was unaffected in the comparison periods except for a decline of 1 million shekels.

-       As for non-tax revenues up to 31-7-2020, which normally represent an annual rate averaging 32% of total local revenues, they (have) declined: they decreased by 271 million shekels as of 31-7-2020 (the first seven months of 2020) compared with the same period in 2019. Collections allocated decreased by about 2 million shekels. Note that local non-tax revenues consist of fees, fines, licenses, etc., while the term "التحصيلات المخصصه" refers to taxes and revenues assigned to local governance bodies, 90% of property tax, and 50% of transport and communications taxes.

-       (It was) … the total of local revenues for the first seven months of 2019 (from 1/1/2019 through 31/7/2019) amounted to 2,621 million shekels, of which:

-       Tax revenues: amounting to 1,618 million shekels, originating from the following: income tax 500 million shekels, value-added tax 647 million shekels, customs 351 million shekels, cigarette excise 104 million shekels, and property tax 12 million shekels...

-       Non-tax revenues: amounting to 796 million shekels, and allocated collections amounting to 206 million shekels.

Clearance revenues, which usually constitute an annual average share ranging between 60%-65% of total public revenues in Palestine, amounted –on a cash basis– to 1,300 million shekels as of 31-7-2019, noting that clearance revenues for the months of March, April, May, June, and July of 2019 were not remitted.....to the treasury of the Palestinian National Authority.

-       (It became) … the total of local revenues for the first seven months of 2020 (from 1/1/2020 through 31/7/2020) amounted to 2,255 million shekels, of which:

-       Tax revenues: amounting to 1,525 million shekels, originating from the following: income tax 437 million shekels, value-added tax 594 million shekels, customs 303 million shekels, cigarette excise 175 million shekels.

-       Non-tax revenues: amounting to 525 million shekels, and allocated collections amounting to 205 million shekels.

Clearance revenues as of 31-7-2020 (for the period from 1-1-2020 through 31-7-2020) became not comparable with their counterparts as of 31-7-2019 (for the period from 1-1-2019 through 31-7-2019), due to the Palestinian National Authority’s refusal to accept them from the despicable Israeli occupation authorities, in return for the occupiers’ insistence on deducting the amounts allocated to the families of prisoners, martyrs, and wounded Palestinians from the Palestinian clearance revenues.

Clearance revenues for the period from 1-1-2020 through 31-7-2020 also remained in the same situation, as the Palestinian National Authority continues to refuse to receive clearance revenues from the Israeli occupation authorities for the same reason mentioned for the 2019 period, and the clearance revenues received for the period referred to above through 31-7-2020 amounted to 3,307 million shekels... noting that there are also several months in this period that were not received by the Palestinian National Authority after security coordination and communications with the Israeli occupation authorities were suspended in this year 2020.

It has become known that clearance revenues essentially belong to the Palestinians, and clearance revenues consist of several types of taxes, with customs duties constituting the largest share of these funds, at approximately 42%–45% as an annual average. The fuel tax, known as the Bulu tax, comes second, estimated at approximately 30%–35% of total clearance revenues annually; then comes value-added tax, whose share is estimated at about 20%–23% annually; then income tax at about 1%–2%... approximately; and others... The average monthly clearance revenues that Palestinians used to receive under normal conditions ranged around 750 million shekels per month.

In this regard, the Authority received approximately 2 billion shekels to 2.4 billion shekels, the value of the Bulu tax – fuel tax in October 2019, and the amount received represented accumulated sums for several months retroactively accumulated by the Israelis. At the time it was said that the two sides had agreed that the Palestinian Authority would collect the fuel tax itself instead of Israel, which Palestinians have long demanded, and therefore it was understood at that time, if these statements were true, that the Palestinian General Petroleum Authority supervising all fuels in Palestine would pay the costs of its monthly fuel purchases invoices without paying the tax on that invoice, which this tax (fuel tax) usually averages 219 million shekels per month. The Ministry of Finance statistics expected that the amount of the fuel tax estimated for 2019 would reach 2,628 million shekels (as of 31-12-2019), and that the expected clearance revenues as of 31-12-2019 would be 8,671 million shekels for a full year on an accrual basis, while 7,868 million shekels were received as clearance revenues for 2019 on a cash basis—that is, they were actually received. However, the Bulu tax, according to our examination of the statistics issued by the Ministry of Finance, still appears in the figures among the clearance revenues received from Israel, as shown by the fourth quarter statistics of 2019 and the first seven months of 2020. The volume of fuel purchases that the General Petroleum Authority buys monthly is estimated at about 80 million liters of fuel, of which 25 million liters are gasoline per month, and 55 million million liters are diesel per month, and 14,000 tons of cooking gas, and other derivatives. In this regard, some studies indicate fuel smuggling from Israel into the Palestinian areas at a rate of 20%, where some sources estimate the tax value of these smuggled (illegal) fuels annually at about 750 million shekels, which goes outside the general treasury of the Palestinian National Authority.... while the annual legal fuel tax value reaches about 3 billion shekels. It had been estimated that the fuel tax from 1/2019 through 7/2019 would amount to 1,467 million shekels, while it had been estimated that the fuel tax from 1-2020 through 31-7-2020 would amount to 1,022 million shekels (according to Table No. 4 of the Ministry of Finance statistics) – on an accrual basis.

- It has become necessary to clarify our view in analyzing and interpreting the indicators of these data: the effect of the Corona pandemic on domestic revenues as of 31-7-2020 compared with 31-7-2019 (the first seven months of each year...) was clear. Domestic revenues arising from local taxes decreased by 93 million shekels; local income tax decreased by 63 million shekels; locally-collected value added tax decreased by 53 million shekels; and customs duties collected locally also decreased by 48 million shekels. This decline in local tax revenues in the period from 1-1-2020 to 31-7-2020, compared with the same period in 2019 (1-1-2019 to 31-7-2019), appears plausible in light of the measures taken and the state of emergency and lockdown, and therefore there was no regular activity of buying and selling or public sector work by ministries and public institutions. Most facilities and sectors were disrupted. However, as we indicated, levies on cigarettes increased by 71 million shekels as of 31-7-2020 compared with the same period of 2019, which appeared contrary to expectations across most sectors and increased the yield from levies on cigarettes as we mentioned above. Despite the state of emergency, the lockdown and restricted movement that were imposed for 5 months from March 2020 due to the Corona pandemic, these levies would normally have decreased. Some sources estimate that this increase represents the value of taxes and levies that used to go outside legal channels from the state treasury, because—according to some sources—some quantities of cigarettes and ma'ssel were smuggled through the crossings with Jordan, thereby avoiding payment of fees and levies under the law. And because movement was restricted due to the Corona pandemic, consumers of cigarettes and tobacco would purchase from the local market, which would generate revenues equal to the levies on cigarettes under the law..!!

- As for the second component of domestic revenues, it is the non-tax revenues, which statistics show clearly declined by 271 million shekels compared with the periods mentioned above. It is logical that these local non-tax revenues would fall given the closure and lockdown measures imposed under the emergency instructions because of the Corona pandemic. In reality, local non-tax revenues represent the value of fees, fines and local licenses that are imposed on individuals and other sectors of the economy when there is business activity, and because of curfews, lockdown and bans on movement... therefore a deep decline in these local revenues compared with 2019 in the period mentioned above was logical.

- As for revenues from clearance revenues of all kinds, which are received monthly from the Israelis in ordinary days, the suspension of security coordination and communications with the Israeli side as we noted above, and the imposition of restrictions on movement in most areas, resulted in a decline in clearance revenues, because import and domestic and foreign trade have seen a large decline in their banking facilities, as also shown by banks' statistics. Consequently, the clearance-based taxes that compose them will decline, primarily customs duties and fuel taxes, among others. Therefore, given the irregularity and incompleteness of data regarding clearance revenues, we cannot analyze them and present definitive results, since these do not represent reality amid the crisis concerning these monies.... However, it is certain that there was a real decline in clearance revenues amid the Corona crisis, and what bank statistics show of a decline in banking facilities directed to domestic and foreign trade by 222 million dollars (about 777 million shekels)—these statistics dated 30-6-2020 compared with the facilities provided dated 30-6-2019—was reflected on the Palestinian economy. In addition to the decline in banking facilities to the tourism sector, despite an increase in banking facilities to banks in the West Bank in the second quarter of 2020 (30-6-2020) by 714 million dollars compared with the second quarter of 2019... The increase appeared in the sectors of consumer loans (167 million dollars), auto financing (64 million dollars), business and consumer services (353 million dollars), and construction, real estate and building (127 million dollars), etc.

· Sources: statistics of the Ministry of Finance and Planning ... on its website ..

· Report "Coalition for Integrity and Accountability (AMAN), 2017 - The General Petroleum Authority between Reality and Aspiration – Ramallah – Palestine "

· Statistics of the Palestine Monetary Authority (PMA) on its website

· Date: 27-9-2020