Amendments to Palestinian Income Tax Law Unconstitutional Commentary
Amendments to Palestinian Income Tax Law Unconstitutional
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JURIST Guest Columnist Mais Qandeel, an LL.M. Candidate at the University of Pittsburgh School of Law, is the author of the tenth entry in a 14-part series from the LL.M. students of the University of Pittsburgh School of Law. She explores the realities of Palestinian income tax laws in theory and practice…


In the past, the West Bank and the Gaza Strip have had two different tax systems. In the Gaza Strip, the Egyptian Income Tax Act No. 13 of 1947 was used, while the Jordanian Income Tax Act No. 25 of 1964 was used in the West Bank. On January 1, 2005, the Income Tax Act No. 17 of 2004 went into effect, which unified the tax laws of the West Bank and Gaza Strip. The Palestinian cabinet of ministers adopted amendments to the law and referred them to Palestinian President Mahmoud Abbas in 2008. These were essentially legislative simplifications that reduced tax cuts and were approved by Abbas under Decree-Law No. 1 2008. He also approved Amendment Number 8 of 2011, which also amended the income tax law. At the beginning of 2012, the cabinet of ministers issued a new amendment [PDF] that was also signed by Abbas. The amendment essentially changes the income tax brackets and increases income tax rates on those with higher incomes. However, despite the law’s approval, the question remains: is the 2012 amendment constitutional?

The 2012 amendment increases the number of income-based tax brackets from three brackets to five. This means that, under the new legislation, taxpayers will be divided into five distinct brackets according to their income. The new law has set tax rates at 5 percent, 10 percent or 15 percent for people in the three lowest income brackets, respectively. However, the new law has increased taxes levied against people with higher incomes. The upper taxable income amount was increased from 35,000 – 70,000 Shekels ($10,300 – 20,600) to 40,000 – 80,000 shekels ($11,800 – 23,550). This means, for example, that those with an annual income of 40,000 shekels ($11,800) will now be taxed at a rate of 30 percent, instead of those earning only 35,000 shekels ($10,300). In addition to these low-level increases, the total amount taxable on those in the highest tax bracket was increased by 15 percent under the new law. People generating any income exceeding 80,000 shekels ($23,550) will now be taxed at a rate of 30 percent, instead of the old standard that taxed those making more than 70,000 shekels ($20,600) at a rate of 15 percent. In evaluating the new amendment, it appears to focus on taxing individuals with high incomes. The income average in the Occupied Palestinian Territories is around 3,200 Shekels ($500), thus, the 2012 amendment will not directly affect most incomes.

However, banks pay 14.5 percent in value-added taxes on their annual profits, as well as another 14.5 percent on their employees’ salaries. In addition, banks have to pay approximately 25 percent of their annual profits in income taxes and contributions to the Palestinian Monetary Authority (PMA). This means that banks are required to pay out more than 50 percent of their annual profits in taxes. Banks might charge customers more for their services in response to this problem, which will affect every individual regardless of income. However, the banks will still have to pay the same percentage of their profits.

Practically, the Palestinian Ministry of Finance has defended the law and says that the changes will not adversely affect people with low incomes. In fact, the Ministry claims that the amendment will support them. The new 2012 amendment focuses its tax increases on those with high incomes only. As a result, this should increase the state’s resources and impact public services for citizens with low income. Furthermore, it will help to reduce the Palestinian National Authority’s financial crises.

On the other hand, individuals and companies say that the 2012 amendment affects them negatively and consequently affects the entire Palestinian economy. From the viewpoint of individuals with high incomes, the 2012 amendment is another financial burden. All of these individuals are already committed to paying taxes, and paying more taxes, therefore, will be a punishment. In fact, all individuals with high incomes are highly educated and qualified at the international level. Therefore, it would be easy for them to immigrate and find jobs somewhere else. Nevertheless, they still affirm their loyalty towards Palestine. Also, they are committing themselves to enhancing the law and supporting the public interests rather than their own interests. But, if the Palestinian National Authority continues to increase taxes on their income, these individuals might not be able to remain in Palestine.

For companies, these tax increases will put them in a position of recalculating their business strategies and they may reconsider expanding. Without a doubt, more income tax on companies will discourage new investments in the private sector of the Palestinian Territories, which will kill the Palestinian economic development process. When a company has to pay more taxes to the government, it will automatically increase the prices of its products. As a result, when individuals with limited income buy these products they will be affected by the 2012 amendment. More importantly, foreign investors will be discouraged from continuing their business in Palestine and there will be no new international investment projects to develop the economic movement.

Legally, the provision of Palestinian Constitution on point is Article 88, which states:

Public taxes and duties shall be imposed, amended and repealed only by law. No one may be totally or partially exempted, except in circumstances prescribed by law.

In Article 43, the constitution also states:

The President of the National Authority shall have the right, in cases of necessity that cannot be delayed, and when the Legislative Council is not in session, to issue decrees that have the power of law. These decrees shall be presented to the Legislative Council in the first session convened after their issuance; otherwise they will cease to have the power of law. If these decrees are presented to the Legislative Council, as mentioned above, but are not approved by the latter, then they shall cease to have the power of law.

The Parliament only has the authority to issue amendments on the law, not on decisions made by the prime minister and approved by the president. Furthermore, issuing amendments made by the Palestinian Authority president, which have the power of the law, require emergency circumstances. Due to the Israeli blockade of the Gaza Strip and the Israeli detention of a parliament member, the Palestinian Parliament has not been in session since 2006. However, issuing three amendments on one law in five years is not an extreme necessity. The only legal resolution to this problem is to file a case before the High Court of Justice seeking to cancel all the amendments to the income tax law.

Mais Qandeel received her bachelor’s degree in law from Al-Quds University in Palestine, in 2006. She worked for a year as a trainee lawyer at the Arab Bank, was a legal advisor for the Palestinian Red Crescent Society and also worked as a partner at the Ahmad Qandeel Law Office. Qandeel is the recipient of a Palestinian Rule of Law Program Fellowship, which is administered by the Open Society Foundation

Suggested citation: Mais Qandeel, Palestinian Income Tax Law in Theory and Practice, JURIST – Dateline, June 4, 2012, http://jurist.org/dateline/2012/06/mais-qandeel-palestine-tax.php.


This article was prepared for publication by Elizabeth Imbarlina, the head of JURIST’s student commentary service. Please direct any questions or comments to her at studentcommentary@jurist.org


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