The Impact Of Covid‑19 On Palestinian Income Tax

1

The Impact of COVID‑19 on Palestinian Income Tax

Amjad Abdallah Alkhatib1, Arkan Naser Salamah 2, Hala Abed Al-Halem Titi 3, Lojaen Ahmad Soboh 4

1Palestine Ahliya University, Department of Accounting, Palestine, amjad@paluniv.edu.ps, (Corresponding author)

2,3,4Palestine Ahliya University, Department of Accounting

Abstract

Income tax is considered a direct tax. It has been given special attention by all States

and has occupied a prominent place in modern tax legislation for its financial, economic

and social implications for the State. The aim of current study was to identify the impact

of COVID-19 on income tax revenues. By analyzing previous studies and comparing

income tax revenues for the year 2020 with previous years, it has emerged that the

Coronavirus has had a significant negative impact on the Palestinian Authority income

tax revenues for the year 2020. This led to the deterioration of the Palestinian economy,

which is essentially fragile, exhausted and dependent on foreign aid. The Palestinian

Authority was unable to cover the deficit, causing the Authority to borrow from abroad

and in-house, resulting in a high proportion of the Authority’s debt.

Key words

Income tax, Coronavirus (Covid-19), tax evasion, Palestine

1. Introduction

Taxation is the primary resource for Governments in both developed and developing countries,

in addition to being an important means for States to achieve their economic and social objectives; as it

is of great importance in financing State public revenues and encouraging domestic and foreign

investments (Alkhatib et al., 2020; Edwin, 2011). The concept of taxation has varied over the years,

depending on changes in economic, social and political conditions, and taxation as defined by Al–

Salameen et al., 2018 “is a compulsory deduction imposed by the State on natural and legal persons free

of charge for the purpose of covering their public burdens, in order to achieve their economic, social

and political objectives in accordance with a law or legislation”.

Taxes build the Government’s capacity to provide security, meet basic needs and promote

economic development (Abdul-Jabbar et al., 2020). Taxation is one of the main tributaries of the

Palestinian Authority Budget, so the State must protect it so that it can provide the funds it needs to

address its economic problems and achieve growth and prosperity for its citizens (Alkhatib & Maria,

2021). The State also seeks to ensure that tax is provided with appropriate social justice so that it can

be accepted by the duty bearers (taxpayers), so they do not consider it as a burden or punishment, but

rather willingly pay it as a contribution to the objectives of the State and to social loyalty among the

members of society, within the framework of a successful tax policy adopted by the State (Farrar et al.,

2017).

Tax revenue is one of the oldest ways to provide funds for government sustainability, and most

governments rely on taxes to meet spending needs (Alkhatib, Abdul-Jabbar, Abuamria, & Rahhal, 2019;

Kira, 2017). This means that taxes were the most realistic means of generating revenue by governments

to finance their development projects (Tanzi & Zee, 2001).

Tax revenue is a real indicator of the effectiveness of government economic and financial

performance (Torgler, 2005), and it has been revealed that there are many factors affecting the value of

government tax revenues. One of which is tax evasion. In this regard, tax evasion is the most common

and important challenge to tax administration (Alkhatib, Abdul-jabbar, & Marimuthu, 2018; Franzoni,

2000).

The Palestinian income tax contribution is very low compared to other countries, and the

Palestinian Authority relies on taxes as one of its sustainable sources of income (Sarangi, 2016). Tax

noncompliance poses a risk to the income of the Palestinian Government, which suffers greatly from

tax noncompliance. The Alliance for Integrity and Accountability in Palestine estimated that USD 500

million is the annual loss of tax evasion (Coalition for Accountability and Integrity, 2018).

In addition, the income tax administration in Palestine is characterized by a high degree of tax

evasion (Rahhal, 2017). Many countries around the world, developed and developing, are experiencing

a high rate of tax evasion, with no 100% commitment by taxpayers to perform their tax obligations