RAMALLAH, February 27, 2018 (WAFA) – The Palestinian Government approved on Tuesday a record $5 billion budget for 2018, which will go into effect immediately after President Mahmoud Abbas ratifies it.
A cabinet statement said that while the general budget is $5 billion, it will increase to $5.8 billion if reunification with Gaza goes as planned and the government takes over charge of the coastal enclave from Hamas.
The deficit in the general budget is expected to reach $1.2 billion, a 0.2% increase from the 2017 deficit. However, the deficit for the unification budget is expected to reach $1.9 billion.
The statement said the deficit increase was minimal in spite of 14% decrease in foreign aid to the Palestinian budget and an increase in development expenditure.
Revenues for the general budget are expected to reach $3.8 billion, while foreign aid to the budget and for development is estimated at $775 million. Current expenditure and net loans are expected to reach $4.5 billion while development expenditure is expected to reach $530 million.
A $40 million monthly funding gap, or $498 million annual, is also expected.
The cabinet said that if the government is allowed to collect all revenues in the Gaza Strip and become the sole proprietor of funds, out of the $5.8 billion budget, $5.2 is allocated for current expenditure and net loans, while $830 million will go for development expenditure. Revenues are projected at $4 billion.
Foreign aid for the budget is expected at $775 million with around $1 billion budget gap, which means growth in expenditure will be 11% higher than growth in revenues.
The government said it expects to fund its budget through “adopting measures necessary to meet this challenge, namely to intensify efforts to improve the financial performance of revenue policies by improving the efficiency and effectiveness of tax performance and developing the tax system through expanding the taxpayer base, attracting new taxpayers, reducing evasion and tax avoidance, increasing matching between direct and indirect taxes, all with the aim of increasing income while at the same time achieving greater social equity in the application of tax policies.”
The cabinet said the treasury is going to adopt a system of progressive increase in tax brackets while adopting a fourth tax bracket instead of the three tax brackets adopted since 2015 to create more social justice, ranging from income tax from zero to 20%, which will increase the number of tax liability by about 10%, and increase tax revenues by 35% during 2018, especially from the self-employed.
Corporate tax policy will be adjusted to stimulate growth and stability of small and medium-sized companies by reducing the income tax from 15% to 10% for small and medium-sized companies with annual net income of $1 million, which constitutes the backbone of the Palestinian economy, which constitute around 90% of the total companies operating in Palestine.
“Based on these adjustments, the Palestinian tax system will become one of the more advanced and stimulating among neighboring countries,” said the cabinet.