Israeli trade control causes $405 million loss for Palestinians: UN

GENEVA - The Palestinian Authority lost at least US$310 million (S $405 million) in customs and sales tax in 2011 as a result of importing from or through Israel, the UN said Wednesday, urging a radical change to the system.

The lost revenue, worth 250 million euros, was equivalent to 3.6 per cent of gross domestic product and 18 per cent of the tax revenue of the authority, the UN Conference on Trade and Development (UNCTAD) said.

The figures point to "the pressing need to change the modus operandi of the Palestinian import regime to ensure Palestinian rights in all economic, trade, financial and taxation areas", it said in a new study.

UNCTAD said the 1994 Paris Protocol which governs economic ties between Israel and the Palestinian territories causes "instability and uncertainty for the Palestinian territory" and should be reformed.

It said barriers should be removed to trade with other countries, and criticised Israel's "disproportionate influence" on collecting Palestinian revenues.

Israel often freezes the transfer of funds as a punitive measure in response to diplomatic or political developments it deems harmful.

About 40 per cent of the so-called "fiscal leakage" is related to direct and indirect imports from Israel, and 60 per cent from evasion of customs duties, the UN said.

The report cited data from the Israeli Central Bank indicating that 39 per cent of Palestinian imports from Israel originate in third countries, but are cleared in Israel and sold on as if produced by Israel.

Customs revenues from these "indirect imports" is collected by the Israeli authorities but not transferred to the Palestinian authority, it said.

Another problem comes from goods smuggled over the border from Israel, the report said, highlighting the Palestinians' lack of control over their borders.

Smuggling results in lost sales and purchase taxes for the Palestinian authorities and, where the goods are produced in a third country, lost tariff revenues.

UNCTAD added that its figures are likely to underestimate the problem and urged further research.