Palestinian Investment Promotion Agency (PIPA)

-       The Palestinian Investment Promotion Agency (PIPA) was established, according to the Investment Law in Palestine, to serve as the practical expression of the Palestinian state's vision in encouraging the private sector and creating a suitable investment environment. The State Audit and Administrative Control Bureau (SAACB) conducted oversight of the Agency for the years 2017 and 2018, and the report concluded by recording the following principal observations.

●     ("Providing a suitable climate for investment"):

-       The Investment Promotion Law and its regulations did not clearly and in detail define the tasks and mechanisms necessary to achieve the law's objectives, especially the objective of "providing a suitable climate for investment," which may lead to the Agency's failure to carry out the necessary tasks and to adopt mechanisms capable of effectively achieving its objectives..!

-       It was not apparent that the Agency prepared comprehensive and sufficient studies that clarify the impact of the investment incentives (tax reduction) granted and their added value on the growth of the national economy in all its indicators, despite the large volume of tax exemptions granted.

-       The Agency does not have a (comprehensive database) that shows the numbers of investment projects registered in Palestine, the geographic distribution across all sectors, and the size of investments in each sector, which results in the Agency losing an important source of information necessary for preparing feasibility studies and an investment opportunities guide, in addition to affecting the Agency's ability to follow up existing projects and investments and to provide the necessary support to them...!

-       The Agency did not provide (special training programs for investors and projects), nor did the Agency include activities in its annual plan for the years 2017-2018 that are concerned with programs and training courses aimed at developing the private sector's businesses, which led the Agency to lose one of the most important tools for encouraging investment and developing existing projects in Palestine....!

-       The Agency did not adopt mechanisms capable of helping investors access (available sources of financing), nor did the Agency's strategic plan for the years 2018-2020... in any of its items, specify activities concerned with assisting investors to access available sources of financing.!!

-       The Association's objectives of providing a suitable climate for investment through removing obstacles and routine procedures related to the registration and licensing of investment projects were not achieved, as a result of its Board of Directors not establishing the (Unified Investment Registry) that would facilitate investors' access to the necessary licenses...!

-       The mechanism used to calculate the rate of project development for (extending the period of benefit from incentives), by relying on the value of net assets for non-consecutive time periods, caused some companies and projects to receive tax reductions (in some cases exceeding 90%), and this mechanism is not approved by the Palestinian Council of Ministers...!

-       There did not appear to be systematically adopted procedures and instructions, formally approved by the Agency's Board of Directors, that set out the principles and foundations for preparing the Investment Opportunities Guide and the data and information that should be presented in the guide...!

●     (Administrative organization within the Agency):

-       It was observed that the Internal Audit Department did not administratively report to the highest authority in the Agency, represented by the Board of Directors; rather it was shown to report to the Chief Executive, which may restrict the department's work and weaken its ability to present effective reports to the Board of Directors concerning monitoring the activities of the executive management and assessing its compliance with laws and regulations....!

-       A notable increase was observed in the proportion of employees working in the (General Administration for Financial and Administrative Affairs), where their number reached 14 employees, which constitutes about 44% of the total number of employees, compared with a lower number of employees working in the General Administration for Verification and the General Administration for Investment — i.e., the departments responsible for implementing the essence and core work of the Agency — where their number reached only 15 employees, which constitutes about 47% of the Agency's employees, which may weaken the Agency's performance in achieving its objectives..!

-       There is no subsequent follow-up for all projects that received tax incentives. Although the number of active company files that received tax exemptions during the period 2017-2018 reached about 345 files, the Agency executed only 32 field visits during 2017 and 2018, i.e., (only 9%), which may lead to the possibility of substantial changes in a project's activity that would necessitate reconsidering the granted incentives without the Agency's knowledge..!

-       Some companies that obtained tax incentives did not comply with submitting their annual audit reports for the fiscal years during which they received the incentives and exemptions, contrary to Article 25 of the law, which prevents sufficient confirmations of the accuracy of the data and disclosures attached to the application to benefit from the incentives...

●     Response to the report: the response was positive, and the Agency amended some of the observations contained in the report... The report was referred to the Palestinian Council of Ministers and the Agency's Board of Directors..

●     My view: It is clear that there is neglect and obvious laxity in the Agency's work, and there are no confirmations of the accuracy of the information and data submitted to obtain the tax privileges and exemptions for investment. The report also indicates weakness in optimally advancing the Agency, which is essential for stimulating investment by granting incentives, providing training programs for investors, and maintaining a database for economic sectors and the geographic distribution of projects. It is noted that the Agency, as stated in the report, conducts only a scant number of field visits... to follow up projects and verify compliance with conditions when obtaining exemptions, which is unacceptable given the high hopes attached to the Agency's establishment.. It is also clear that there is a flaw in the employment and distribution of staff within the Agency......and their concentration in a non-core department.... in performing the essence and core work of the Agency... while the main departments responsible for implementing the institution's work did not receive their appropriate share — according to the report —

●     We hope that all these observations contained in the report will be addressed and that the Agency's important and essential role in developing the national economy in Palestine will be activated... in a manner different from its current state....!

●     Date: 10-9-2022