Muayad Afana writes: What kind of tax system do we want?
The tax system in Palestine consists of direct taxes and indirect taxes. Direct taxes are levied and collected from taxpayers who work in the country of the state. They are levied on business profits, wages and similar income for individuals and companies, including: income tax and property tax, which is a “relatively fair” tax because it is collected from taxpayers according to their level of income and the assets they own, such as buildings, land and more. As for indirect taxes, it is a (blind) tax imposed on consumption, production and import activities, including: value added tax, fuel tax, customs and excise duties, …, and according to the data of the Palestinian Ministry of Finance in 2021 year, tax revenues in both parts constitute This represents (91.5%) of the total net revenues of the Palestinian National Self-Government. These tax revenues come through local tax revenues or tax revenues through “clearing traffic” with Israel.
By quantitative analysis of the structure (structure) of tax revenues in Palestine, direct taxes (income and property) accounted for only (8%) of total tax revenues in Palestine in 2021, while the percentage of indirect taxes (value added), fuel, customs, cigarettes …), which are charged to the consumer, amounted to (92%) of total tax revenues, and therefore (fair) taxes make up a very small percentage that does not exceed (10%). of total tax revenues, while taxes (for blind people) make up the vast majority of tax revenues.
An analytical review of the philosophy of tax systems relies on social, financial and economic foundations. Its social function is represented in the redistribution of wealth in order to ensure the achievement of social justice in the state, the employment of tax revenues in achieving social stability, the provision of social services and social protection for the marginalized, vulnerable and poor groups. As for its financial function, it is represented in providing revenue for the state treasury to cover public expenditures, while its economic function is represented in that it is the main tool of the state’s fiscal policy, which is used to stimulate economic growth, reduce inflation levels or protect the national economy through certain taxes, tax cuts, etc.
From these principles, the Palestinian tax system must achieve a philosophy of taxation, by maximizing revenue, protecting the national economy, and most importantly by achieving and implementing social justice. However, through the previous quantitative analysis, we find that the figures show that the tax system mainly relies on indirect taxes rather than direct taxes on wealth and property, which is contrary to the concept of social justice.
For example, income tax, which is a direct tax, and despite its great importance in the redistribution of wealth between the rich and the poor for the purpose of implementing social justice, its contribution to tax revenues in 2021, for example, did not exceed (8%) of total tax revenues, which means that the capital of companies and individuals does not contribute to tax revenues as much as necessary, compared to different countries of the world, where we notice that the percentage of income tax contribution to total tax revenues is much higher than what is the case in Palestine, and the principle of progressivity in income tax , which is considered one of the foundations of tax fairness, we find its rate in some countries in the world gradually and reaches about 42% or more, but in Palestine the principle of progressivity is missing, and the maximum is 15% for individuals and 15% for companies, except for monopolies reaching 20%, and the irony is that the same institution, especially in the banking and commercial sectors, operates in Palestine with an income tax rate of it is much lower than the rate imposed in other countries where the same institutions operate.
As for indirect taxes, which are contrary to social justice, one of them is value added tax (VAT), which accounted for 26% of tax revenues in 2021. It is a “blind” tax that affects all groups in society without of discrimination and amounts to 16% of the turnover value, and the problem of value added tax is that poor and marginalized groups are forced to pay it because it is on goods and services without discrimination. For example. the tax is collected on basic goods such as bread and milk, and basic services such as communications and electricity, at the same rate as on luxury goods and services. Such as luxurious sweets or expensive perfumes, although the former is a necessity for the poor, and the luxury and opulence of the latter.
In light of the above, we (as citizens) need a fairer Palestinian tax system and less pressure on the poor, especially since tax revenues are the mainstay of collection in the Palestinian National Authority. (Revolutionary) towards positive discrimination in favor of the poor, working on two axes, amending the income tax law to ensure the implementation of the principle of income tax progressivity, expanding vertically upwards by adding segments with high capital rates and companies with large profits, and horizontally expansion of tax collection To include liberal professions in a scientific and systematic way, and at the same time to expand tax relief for lower income groups, this matter, if implemented, will also increase the general revenue of the state. Work must now be done to include issues of social justice in the draft law on value added tax, which the Government is currently working on preparing. It currently involves grading VAT rates on goods and services according to their necessity or perfection, so that they are zero or close to zero on basic goods and services. exponential, and its percentage increases in accordance with the level of commodity welfare, and thus the subsidy of basic goods, in order to contribute to the promotion of social justice and the provision of social protection to the poor and marginalized groups.
In conclusion, it is not possible for a nation that seeks “freedom” to have no elements of stability, and to not implement social justice in it, because it is the main pillar of the social contract between the state and the people, and a lever for strengthening the sense of citizenship and belonging.
Moayad Afana – researcher and expert on public budget issues
