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Letter from Israel
David Frankfurter
The Frankfurter Plan 
15th-May-2006 11:29 am
The Funding for Peace Coalition just posted a summary of the Palestinian Authority accounts for the three calendar years 2003 - 2005.  Except for the most, well, accounting types among us, that sounds pretty boring. In fact, the introductory notes make some interesting reading.  And then it degenerates pretty quickly into eye-glazing tables of numbers.
But, being a boring CPA by trade, I forced myself into a little look. And being a masochist, whether it's accounts or a pay slip, the first thing I review is income taxes. After all, practically everything there is to know about tax in the Palestinian Authority - who pays and  how much - is unknown. So I tried to figure it out from the published accounts; and here's what I turned up.
From what I could see, Al Capone probably looks down on his protégées in the Palestinian kleptocracy with pride - and a little jealousy.   Chicago simply didn't provide the same opportunities as down-town Ramallah. 
Overall, the PA tax regime is relatively favourable, although income taxes cut in at the first shekel. The minimum personal tax rate is 5%.  The corporate tax rate is the same as the highest personal tax rate - 20%.  For salary earners, tax is deducted at source.  Total reported income tax collections for the full three years was a mere $173 million.  That includes amounts collected by Israel on behalf of the PA.  This means that (at a 5% - 20% marginal rate) total taxable income for three years for the whole PA was between $865 million and $3,465 million.
Don't fall asleep quite yet - lets see how that adds up first!   Let's assume that the PA knows how to deduct taxes from its own employees, and that UNWRA, being a law abiding organisation, deducts taxes too. PA salaries were reported at $2,552 million for the three years and UNWRA salaries in the West bank and Gaza run at about $600 million for three years - that means that not a single other person or company in the whole Palestinian Authority earned a single shekel of taxable income.  Not bad considering some of the fancy cars, houses, cell phones, shopping malls and other attractions one hears are used by the upper classes of downtown Ramallah and Gaza. 
In common with kleptocrats throughout history, the Palestinian elite have clearly preferred that their awesome wealth - the fortune generated by skimming international donor generosity - remain tax-free.  But in the world of organised crime, it's known that, when freshly laundered assets are re-invested, some token tax is paid. But from these accounts, it's clear the Palestinian elite lack the elementary courtesy to pay modest taxes on 'legitimate' income earned from their ill-gotten gains. 
So when Bassam al-Shaqaa, a former mayor of Nablus went to the streets collecting donations for Hamas from the local population and said “These donations are our way of telling the world that we can live without them, and our children are paying what the Europeans should be paying,”   I guess he was right.  Europeans know they really should shut their mouths, close their eyes, and hand over their taxes so they can be duly passed along to the Palestinians.
One of my correspondents pointed out that it's time I came up with some positive suggestions for change, instead of always moaning. So here's one which might also increase the gainful employment of my fellow accountants.  Let the PA announce a 90 day tax amnesty.  Palestinians of all walks of life will then be granted the opportunity to file/update their tax returns for the past 5 years. They will be free to pay any errors or oversights without penalty.  And while they're busy doing this, the PA leadership will use those 90 days to do something constructive with the 10,000 security staff identified by the International Monetary Fund as "non-performing". The PA can re-train them for new duties in the PA's new, greatly-expanded tax collection department. This could be a very short training course - these people already have the tools of trade and are highly motivated and experienced in extracting due payment from their own Palestinian populance.

Apart from solving some regional problems, the Frankfurter Plan will have the added benefit that the PA can stop its unseemly begging in the streets, taking women's jewelry and expropriating their poor little children's inheritances to fund the new Hamas regime.  Not to mention your taxes.
15th-May-2006 10:04 am (UTC) - Great Job!
I've posted you at my blog:-
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