The best way to describe the Palestinian economy is that it is captive and constrained by Israeli obstacles, legislation, and agreements with Israeli authorities. Therefore, it is essential to study Israeli laws to understand their impact on the commercial and economic life of Palestinians, especially those living under occupation.
In this context, Qawl Fassel magazine prepared a summary of the main issues related to the Cash Reduction Law in Israel, issued based on the recommendations of the “Locker Committee,” which significantly affects Palestinians in Israel, Jerusalem, the West Bank, and Gaza.
Cash Reduction Law
At the end of 2018 and the beginning of 2019, the Israeli Knesset decided to reduce cash usage through a new law that limits the amount of cash allowed in commercial transactions and imposes additional restrictions on using checks.
The law aims to enhance financial oversight of commercial transactions, reduce unregistered financial dealings, and combat tax evasion and money laundering.
The law came into effect in all Israeli-controlled areas starting Tuesday morning, January 1, 2019, significantly impacting most business and cash transactions for companies, associations, and individuals.
According to the agreements signed between Palestinians and Israel, including the Paris Economic Agreement, Tel Aviv must receive funds in shekels due to the absence of a Palestinian central bank. Simultaneously, the law stipulates the “return of the currency to its origin,” reinforcing the shekel’s role in the Palestinian economy under occupation.
Law Details
Restriction on Cash Usage
The law prohibits professionals, including non-profit institutions, from paying or receiving cash payments in commercial transactions, donations, or charitable activities that exceed 10% of the transaction amount or 11,000 shekels, whichever is less.
- Example 1: A transaction worth 7,000 shekels can be completed entirely using cash.
- Example 2: For a transaction worth 30,000 shekels, 10% (3,000 shekels) can be paid or received in cash, while the remaining 27,000 shekels must be paid via credit cards, checks, or bank transfers.
- Example 3: For a transaction worth 130,000 shekels, 11,000 shekels can be paid or received in cash (since 10% exceeds 11,000 shekels), with the remainder paid via credit cards, checks, or bank transfers.
Restrictions on Tourists
The law also prohibits professionals from receiving cash amounts exceeding 55,000 shekels from foreign tourists in exchange for financial transactions.
Transactions Between Individuals
The law prohibits individuals from engaging in non-commercial transactions, such as purchasing personal property like cars or real estate, with cash payments exceeding 10% of the transaction amount or 50,000 shekels, whichever is less.
Violations of the law result in fines and Penalties based on the transaction amount:
- If the transaction or check amount is up to 25,000 shekels, the fine is 15% of the violation amount.
- If the transaction or check amount is more than 25,000 shekels and up to 50,000 shekels, the fine is 20% of the violation amount.
- If the transaction or check amount is more than 50,000 shekels, the fine is 30% of the violation amount.
Exemptions
- Lawyers and accountants can receive cash payments up to 50,000 shekels for their services.
- Tourists can pay up to 55,000 shekels in cash.
- The law does not apply to cash transactions between relatives (except payment for work).
- The law does not apply to certain state authorities such as enforcement agencies and security bodies.
- The law does not apply to contracts signed before December 31, 2018, except for ongoing agreements for services or rental agreements.
Challenges and Issues in the Palestinian Economy
Impact on Financial Liquidity
Reducing cash usage decreases the financial liquidity available to Palestinians, especially in areas lacking banks and financial infrastructure, such as rural and remote areas. Basic banking services like opening bank accounts or using credit cards can be difficult, restricting the ability of individuals and small businesses to conduct daily transactions.
Increased Administrative Costs
Implementing the law requires establishing a complex regulatory system with advanced financial technologies, making it challenging for many small and medium-sized businesses in Palestine to cover the costs of updating payment and financial reporting systems.
These additional costs can reduce profits and increase operational expenses, negatively impacting their market competitiveness.
Impact on Informal Economic Activities
Informal economic activities constitute a significant part of the Palestinian economy, where many individuals and businesses rely on cash transactions to bypass financial and banking restrictions. Reducing cash usage pushes these activities further into the economic shadows, complicating efforts to control illegal activities and diminishing the Palestinian government’s ability to collect taxes effectively.
Impact on Social Sectors
The law also affects social sectors, as many Palestinians depend on cash aid and donations in areas such as education, health, and humanitarian relief. Imposing restrictions on cash use complicates providing support to individuals and families in need, negatively affecting their ability to meet basic needs.
Challenges in Economically Fragile Areas
In Palestinian Authority-controlled areas like the West Bank and Gaza, where the economy suffers from structural problems and humanitarian crises, the law exacerbates the already dire situation. Residents in these areas face difficulties accessing modern banking services, and restricting cash use increases their financial challenges.
Impact on the Palestinian Economy
Under the pretext of combating “terrorism,” money laundering, and crime in markets, Israel stopped accepting cash from Palestinian banks two years ago, following the enforcement of the “Locker Law” in early 2019, which restricts cash transactions exceeding 11,000 shekels and forces electronic payments.
While this measure appears to regulate and control cash financial transactions, it carries hidden “malicious intentions.” Israel uses it to impose more pressure on Palestinians and restrict their freedom, aiming to subjugate them politically, especially as Israeli banks stopped receiving shekels in tandem with the announcement of strategic international projects like the Deal of the Century.
These measures significantly affect the Palestinian economy, hindering the ability of Palestinians to use cash in Israeli-controlled areas, increasing the challenges of commercial and financial interactions under occupation. This underscores the importance of understanding the law’s details and avoiding any potential harm to the already fragile Palestinian economy.
Additionally, the Israeli central bank refuses to pay interest on deposited funds, draining the reserves and liquidity surplus of the Palestinian bank, preventing it from linking deposits or securing loans from external banks.
Documented information indicates that Palestinian workers in Israel deposit between 10 to 12 billion shekels annually, and about 5 billion shekels are spent by Palestinians within Israel in the West Bank each year.
According to agreements between the Palestinian Monetary Authority and the Israeli central bank, the latter is supposed to receive surplus shekels every quarter, amounting to 4 billion shekels.
The impact of shekel accumulation is evident in Palestinian banks, which primarily depend on receiving funds and paying interest to depositors in various currencies, then reinvesting them in the market as loans, usually in dollars and Jordanian dinars, and less so in shekels. This results in a significant discrepancy between depositing and exchanging shekels, leading to accumulated losses for banks because the deposited shekels are not invested within the Palestinian market.
Furthermore, some Palestinian banks have accounts with their Israeli counterparts for foreign trade and financial documents and credits.
Due to Israeli banks not accepting shekels, Palestinian banks’ accounts are left without balance, significantly affecting depositors. Palestinian banks are forced to impose fees on shekel deposits, albeit at varying rates, to avoid accepting them and cannot link term deposits to generate interest for depositors.
All these factors increase control and pressure on the Palestinian economy, making it directly tied to political changes or tools of political blackmail.
