- Hamas will need to increase its own taxes to pay for maintaining power and social services within the Gaza Strip, raising the likelihood of large-scale protests
- The PA is gambling on forcing the Hamas leadership to the negotiating table with Fatah or ruin, in light of a renewed US push for peace negotiations
- A prolonged period of economic pressure would raise the risk of violent escalation in Gaza and increase the risk of war with Israel, as Hamas would hope that conflict solidifies its grip on power
The PA's decree exempts Gazans from paying income tax, imported goods tax, and property tax. These monies would have been mostly paid from the salaries of Gaza government employees. This is the latest in a series of financial measures aimed at pushing Hamas into accepting the authority of the PA. The PA, led by Mahmoud Abbas' party Fatah in the West Bank since a split with Hamas in 2007, accused Hamas of using tax receipts to pay only its employees and for its projects rather than the provision of services within Gaza.
Hamas, in our view, correctly, accuses Abbas of cutting its revenue as a political move to discredit the group, driven by his unpopularity among the Palestinian electorate. Palestinian local elections were held on 13 May, but Hamas boycotted it, forcing an indefinite postponement of the vote in Gaza.
The PA announced on 27 April that it would no longer pay Israel a monthly USD11 million to provide electricity to Gaza. The PA had also forced a doubling of diesel prices in Gaza in April by suspending tax exemptions for the enclave. The main power plant in Gaza subsequently shut down. Israel provides 55% of Gaza's electricity, with a remaining 30% coming from a plant in Gaza and 15% provided erratically by Egypt. A shutdown of power from Israel would reduce Gaza's power supply to approximately one hour a day. This is insufficient to run Gaza's hospitals and water pumping stations. In March, the PA cut the salaries of approximately 60,000 PA employees in Gaza between 30-70%.
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