RAMALLAH (Ma’an) -- The Palestinian Authority loses around $500,000 annually due to tax evasion, a research institute says.
MAS, the Palestine Economic Policy Research Institute, says income tax only provides 7 percent of the PA's budget because tens of thousands of workers -- including doctors, lawyers and engineers -- are not monitored by tax authorities.
At a roundtable discussion on the institute's latest study on the financial sustainability of the PA, MAS researcher Ahmad Qabajah said VAT, customs revenue and fuel tax were a major portion of the government's income.
Since its establishment in 1995, the PA has been dependent on external aid and its mutual economic relations with Israel. The PA's economy has suffered due to the instability of political relations with Israel, resulting in a culminated budget deficit, Qabajah said.
Meanwhile, the PA's running costs have constantly increased. Social services took up 43 percent of outgoing funds in 2010 and 2011, according to the researcher.
The PA spends a high percentage of its outgoing funds on security -- 31 percent in 2010 and 32 percent in 2011 -- compared to other key ministries, Qabaja said, noting that the Ministry of Health received 11 percent of the budget while the education ministry took 19.4 percent.
The PA's budget deficit started to accumulate in 2000 as a result of Israeli incursions and destruction of infrastructure, he said.
The situation improved slightly in 2007 with the flow of international aid, yet the PA’s budget deficit in 2011 was around $1 billion, equivalent to 12 percent of GDP. The PA had to borrow money from banks to cover the deficit.
In 2011, the PA's debts reached $2.213 billion, around a quarter of GDP.
Qabaja said money borrowed by the government was used to cover running costs rather than investing in projects which could improve income long-term.