By SCM Staff Writer
JERUSALEM — The Israeli parliament, Knesset passed a law on Monday that significantly expands the government’s ability to withhold tax revenues from the Palestinian Authority, a move that critics warn could push the already hollowed-out Palestinian economy to the brink of collapse.
The legislation, which passed its second and third readings in the Knesset plenary by a vote of 29 to 5, codifies a mechanism allowing Israel to strip additional millions from the customs and tax revenues it collects on behalf of the Palestinian Authority (PA).
Under the new law, these seized funds will be redirected to pay out insurance benefits and financial compensation to the families of Israeli settlers and citizens killed or injured in Palestinian attacks.
Sponsored by Avichai Boaron, a lawmaker from Prime Minister Benjamin Netanyahu’s right-wing Likud party, the bill marks a sharp escalation in Israel’s financial warfare against the administrative body in the occupied West Bank.
”The Authority has chosen for years to incentivize terror,” Mr. Boaron said in a statement defending the legislation, referring to the PA’s practice of providing stipends to the families of Palestinians imprisoned or killed by Israel—a system critics label “pay-for-slay.” He added, “The time has come for it to bear the consequences. Israeli blood and Israeli property are not free for the taking.”
Under the technical provisions of the law, Israel’s Finance Minister—currently the ultranationalist Bezalel Smotrich—will be required to submit an annual report assessing the total volume of national insurance payments and property damage claims resulting from these incidents.
The Israeli cabinet will then calculate that total and deduct it directly from the monthly tax transfers due to Ramallah. The law allows for these deductions to be applied retroactively to January 1, 2025.
To understand the volatile nature of the new law requires looking at the fragile financial plumbing that underpins the Israeli-Palestinian conflict.
Under the Paris Protocol—a 1994 economic annex to the Oslo Accords—Israel collects customs duties, import taxes, and value-added taxes on behalf of the Palestinian Authority for goods that pass through Israeli ports destined for the West Bank and Gaza. Known as “clearance revenues,” these funds total roughly $200 million a month.
They represent the lifeblood of the PA, accounting for nearly 70 percent of its total public revenue and funding the salaries of tens of thousands of civil servants, teachers, medical staff, and security personnel.
While the Oslo Accords mandate that Israel must faithfully transfer these sums to Ramallah every month, the revenue has long been weaponized as a tool of political leverage.
In 2018, Israel passed a foundational law allowing it to freeze an amount equal to what the PA pays out in prisoner stipends.
However, the newly passed legislation goes a step further: it moves beyond freezing funds to actively liquidating them, rerouting Palestinian public tax assets straight into the Israeli state treasury and to private civil claimants.
The law lands at a moment of profound economic desperation for the Palestinian Authority. Relations between Jerusalem and Ramallah have disintegrated entirely over the last few years.
Following the Hamas-led attacks on October 7, 2023, and the ensuing war, Mr. Smotrich clamped down tightly on the flow of money. The Israeli government completely halted the portion of the tax revenues traditionally earmarked for the Gaza Strip and escalated unilateral deductions.
Palestinian Prime Minister Mohammad Mustafa recently accused Israel of using “political, security, and colonial tools” to deliberately suffocate the West Bank economy.
Because of the ongoing cash freeze, the PA has been unable to pay its public sector employees full salaries for over a year, triggering rolling strikes, failing public services, and deep social unrest in cities like Ramallah, Nablus, and Hebron. International banks have also grown increasingly hesitant to clear transactions for Palestinian financial institutions out of fear of running afoul of Israeli anti-terrorism laws.
Human rights organizations and international observers argue that the new law effectively amounts to collective punishment, choking off civic administration for millions of Palestinians to penalize the actions of individuals.
With Western allies, including the United States, repeatedly warning that a total bankruptcy of the Palestinian Authority could cause a security vacuum and ignite a total collapse of order across the West Bank, the passage of Mr. Boaron’s bill represents a high-stakes gamble by Israel’s right-wing coalition.
By formalizing these sweeping deductions into statutory law, the Knesset has ensured that the financial squeeze on Ramallah is no longer just a temporary wartime tactic, but a permanent fixture of Israeli policy.
