Palestinian Clearance Revenues: Israeli Grip and the Challenges of Decoupling

Structural Financial Leakage

First: An Analytical Reading of the Paris Economic Protocol

·         I reviewed a report entitled "Forms of Financial Leakage and the Financial and Economic Losses Incurred by the Palestinian Authority in Its Relationship with Israel", issued in October–November 2025 in the series of reports: "Coalition for integrity and accountability (AMAN). 2025 Forms of Financial Leakage and the Financial and Economic Losses Incurred by the Palestinian Authority in Its Relationship with Israel. Ramallah - Palestine" prepared by Dr. Kaid Tanbour. The report addresses one of the gravest structural challenges facing Palestinian public finance, namely the systematic financial leakage resulting from the unequal financial relationship with Israel as it crystallized since the Paris Economic Protocol of 1994. This leakage signifies the total loss of public revenues due to accumulated distortions in the collection and transfer system, whether resulting from internal tax evasion, informal economic activities, disparities in the clearance mechanism, or deliberate appropriation of revenues by the occupation authorities, including amounts collected on behalf of the Authority that were not transferred to the public treasury within their legal deadline, or for political reasons!

·        The report aims to diagnose the channels of financial leakage, estimate its size, and analyze its overall financial and economic effects, reaching practical response proposals to reduce its risks amid an unprecedented financial crisis facing the Palestinian National Authority.

Second: The General Framework of the Problem

·        The Paris Protocol constitutes the regulatory basis of financial and economic relations between the two parties, granting Israel a central role in collecting taxes and customs duties on Palestinian imports and transferring them to the Palestinian Authority after deducting an administrative commission. Despite the supposedly transitional nature of this arrangement, it has practically established a permanent pattern of Israeli control over Palestinian financial resources, in light of continued dominance over crossings, trade, and natural resources, and the absence of any binding international arbitration references to resolve disputes.

·        These distortions deepened after the Joint Economic Committee ceased functioning in 1999, and the implementation of the protocol's provisions relied on bilateral understandings and moral commitment, which allowed Israel to apply the provisions selectively and unilaterally in ways that serve its interests and impose high financial and economic costs on the Palestinian side.

Third: The Concept and Nature of Financial Leakage

·        The report defines financial leakage as the total loss of revenues due to a complex system of distortions, which includes: unjust provisions in the Paris Protocol itself (formally legal but unfair in effect), direct Israeli breaches of the agreements, in addition to practices of “financial piracy” that exceed the agreements, through seizure or illegal deduction of sovereign Palestinian funds.

Fourth: The Size of Financial Leakage and Its Main Channels

·        The AMAN Coalition report estimates the total annual financial leakage in Palestinian public finances at about 1.105 billion US dollars, equivalent to 22.9% of total public revenues, and approximately 7–7.4% of GDP. This high level of financial loss reflects severe structural pressure on the Palestinian public treasury, undermines the government's ability to finance social, developmental, and investment spending, and deepens the chronic fiscal deficit.

·        The report concludes that financial leakage is not a transient technical or administrative malfunction, but rather a structural and political phenomenon resulting from the unequal financial relationship with Israel as crystallized in the Paris Economic Protocol of 1994, along with unilateral Israeli practices and internal Palestinian shortcomings in follow-up and governance. The report documents eight main channels of financial leakage, varying in size and impact, but together entrenching financial dependence and undermining economic sovereignty.

·        Taxes on Palestinian workers in Israel and the settlements are the largest source of financial leakage, with an annual value estimated at about 419.3 million dollars, or 37.9% of total leakage. These taxes include the income tax levied on workers' wages, in addition to the "equivalent tax" imposed according to specific income brackets. Although these taxes represent a fundamental source of public revenue for the Palestinian National Authority, the collection and transfer policies imposed by the Israeli authorities have led to widespread financial loss. Official data indicate that total compensation to Palestinian workers in Israel and the settlements during 2020–2024 amounted to about 14.1 billion dollars, and a large portion of taxes due should have been transferred to the Palestinian treasury; however, actual transfers were far less, resulting in a high annual leakage in income tax. As for the equivalent tax, which was estimated over five years at about 929 million dollars, it is not transferred at all to the Palestinian treasury, making the leakage in this tax 100%.

·        In second place are Israeli economic activities in the areas classified as (C), with losses estimated at about 284 million dollars annually, due to the absence of Palestinian control over resources and taxation in these areas. UNCTAD estimates show that restrictions on about 30% of the developable area of Area (C) cost the Palestinian economy cumulative losses exceeding 15 billion dollars during 2020–2024, representing the opportunity cost of output and revenues that could have been realized if Palestinians were enabled to exploit their resources freely.

·        As for the telecommunications sector, financial leakage there is estimated at about 162.5 million dollars annually, resulting from Israeli control over frequencies, infrastructure, and international gateways, depriving the Palestinian treasury of potential sovereign revenues and limiting the development of this vital sector.

·        Leakage also appears in taxes and duties on fuel, stemming from the monthly collection commission of 3%, in addition to fuel smuggling from the settlements and Area (C). Estimates indicate that between 17% and 25% of West Bank fuel consumption comes from illegal sources not subject to taxes, leading to annual losses estimated at about 90 million dollars.

·        An important channel is also the administrative commission on clearance revenues (3%), unilaterally imposed by Israel. World Bank estimates show that a fair administrative cost does not exceed 0.6%, meaning that about 80% of this commission represents a net financial leakage from the Palestinian treasury.

·        A wide leakage is also recorded in import policy taxes, due to Israel's control of crossings and customs classification, notably via the re-export mechanism, where goods are imported from third countries through Israel and then redirected to the Palestinian market and treated as Israeli goods. Estimates indicate that about 27% of imports from Israel are in fact re-exported goods, depriving the Palestinian treasury of customs duties, purchase tax, and excises due, with an estimated value of 237 million dollars during 2020–2024.

·        The departure tax via the Allenby/King Hussein Bridge is another leakage channel, despite being a Palestinian sovereign revenue. The collection and distribution mechanism under the Paris Protocol leads to both legal and practical leakage, and leakage in 2024 alone reached about 12 million dollars.

·        Finally, the seizure of clearance revenues during 2020–2025 constitutes one of the most prominent forms of “financial piracy,” where the total funds withheld until July 2025 amounted to about 2.387 billion dollars, in addition to indirect losses resulting from borrowing to cover current expenditures, which exacerbated the liquidity crisis and the irregularity of paying sala

Fifth: Conclusion

·        The report concludes that financial leakage, in its multiple manifestations, contributes to deepening the chronic deficit, eroding fiscal space, weakening economic and social stability, and undermining Palestinian financial sovereignty through excessive reliance on revenues subject to external control.

Sixth: Report Recommendations

·        The report recommends a comprehensive review of the Paris Protocol and clearance mechanisms, strengthening governance and transparency, developing local collection instruments, and internationalizing the issue of financial leakage in light of the absence of international arbitration mechanisms and the Joint Economic Committee’s suspension since 1999.