The question of taxation in the Israeli-occupied West Bank and Gaza Strip, always the subject of intense debate in the past, has assumed a greatly magnified importance during the current uprising. Since shortly after the uprising began in December 1987, the residents of the Occupied Territories have engaged in a boycott of taxes. Fundamental questions have been raised concerning the legality of tax collection under an occupation, the ultimate destination of tax revenues as well as the legitimacy of the tax boycott itself.

Two matters in particular are addressed in this report. The first is the legality, under international law, of the Israeli military government's fiscal policies. The Israeli authorities have consistently maintained that procedures employed to raise revenue are strictly legal. Thus, in response to an intervention by al-Haq concerning tax raids in Beit Sahour in 1988, the Legal Advisor replied, "Only legitimate measures [of collection] have been adopted against … taxpayers." Again the Income Tax Commissioner of Israel was reported in the Jerusalem Post (15 September 1989) as saying, "Tax collection in the territories conforms to international treaties and the tax laws in force in Jordan and Egypt in 1967, and all monies raised there are used to finance the activities of the Civil Administration, to support schools, hospitals, and municipal services." These claims are here taken seriously and examined in the light of fact.

The second issue which this report attempts to tackle concerns the fundamental rights and duties of local inhabitants of the West Bank, in matters of taxation, vis-à-vis the military government. The latter includes the question of whether or not the current tax boycott is legal under international law. This last question cannot, however, be answered before official claims that the authorities are acting in accordance with the law have been fully dealt with. Accordingly, having set out the international legal framework, the report discusses the creation of new taxes (such as value added tax) by the Israeli authorities, changes in the methods of assessing taxes, rates of tax, enforcement mechanisms and penalties, and the extent to which tax revenues are accounted for by the authorities.

Certain technical difficulties arise in discussing the issue of taxation. These relate both to the nature of the legal and economic aspects of the matter, as well as the availability of evidence. The principal applicable international law is the humanitarian law codified in the Regulations annexed to the Hague Convention of 1907. This law was drafted at a time when basic concepts of macroeconomics were still largely unknown. Certainly the economic effects of a prolonged occupation, such as exists in the West Bank and Gaza Strip, were not explicitly contemplated. Analysis of the legality of aspects of taxation under occupation must therefore rely to a substantial extent on simple common sense; there is simply no room for overly technical, textual interpretations of the law.

In contrast to the relatively simple terms of humanitarian law, as it relates to taxation, is the often complex nature of economic evidence. Calculation of tax burdens over time and assessment of the effect of taxes on businesses and trade require sophisticated economic techniques. Such operations are largely beyond the scope of this report.

So far as military legislation is concerned the problems encountered are more basic. Military orders amending the local, Jordanian law of taxation are numerous, constituting a large proportion of all military legislation issued since 1967. Some military orders are not published. Most are issued in Hebrew and then translated into extremely poor Arabic. Most problematic of all, the military government does not issue complete, amended versions of the various tax laws. Rather, the lawyer, accountant or researcher is obliged to piece together the law by examining dozens of military orders, written in broken Arabic and fitting them into the local Jordanian law.

Perhaps most significant, there is the problem of the lack of official records. In particular, there is no published budget for the Occupied Territories showing a detailed breakdown of revenue and expenditure. This renders full consideration of official positions concerning budget surpluses and deficits, level of services and separate accounting for Israeli settlers and the Palestinian inhabitants of the Occupied Territories, difficult. In addition, there is a dearth of evidence regarding the existence of official economic plans for the Territories, fiscal policy, development prospects and so on.

Finally, although many of the principles discussed apply in both the West Bank and the Gaza Strip, the focus of this report is on the system of taxation in the West Bank: the report does not attempt to discuss the question of taxation in the Gaza Strip. Nor does it attempt to be comprehensive even as far as the West Bank is concerned: the report does not deal with annexed East Jerusalem, and several areas, such as the taxation of companies and the economic consequences of this, are only cursorily treated. Having said this, it is hoped that the report will play a significant role in clarifying the legal issues relating to taxation in the West Bank, particularly in the context of the current uprising.

Appended to the report are outlines of the law of assessment and collection of income tax and value-added tax. The scope of the law presented in the appendices has proved sufficient to cover most cases with which al-Haq has had to deal in its legal aid programme. The object of the appendices does not, therefore, extend beyond providing an introduction for the non-specialist working in local legal aid programmes as well as others without specialist knowledge of taxation.

Introduction

Chapter 1: International Law of Taxation Applicable in a Belligerent Occupation

1st. Introduction: General Legislative Powers of an Occupant
2nd. Applicable Law of Taxation: Limitations on the Right to Collect Taxes

1. Respecting the Laws in Force
2. Revenue Collected Must be Returned to the Occupied Territory

3rd. Some Consequences of Illegal Tax Collection
4th. Summary and Conclusions

Chapter 2: Changes in the Local Law of Taxation: New Taxes, Enforcement Procedures and Penalties

1st. Introduction
2nd. Measures Introduced "for the benefit of the economy"

1. Value-Added Tax (VAT)
2. Customs and Excise Duties

3rd. Revenue-Increasing Measures

1. Indirect Taxes and Fees
2. Enforcement Measures
4th. Summary and Conclusions

Chapter 3: Changes in the Local Law of Taxation: Incidence and Assessment of Taxes

1st. Introduction
2nd. Incidence of Tax

1. Income Tax
2. Rural Property Tax
3. Urban Property Tax
4. Municipal Taxation: Education Tax

3rd. Assessment of Tax

1. Procedure for Deduction of Income Tax at Source
2. Payment of Tax on Income Other Than Income Derived from Employment

4th. Summary and Conclusions

Chapter 4: Practice During the Uprising

1st. Introduction
2nd. Cutting Services
3rd. Assessment and Collection of Taxes in Practice

1. Arbitrary and Excessive Assessment: Article 86 of the 1985 VAT Regulations
2. Collection of Tax

4th. Summary and Conclusions

Conclusions

Appendices