The Paris Protocol established a customs union, which essentially formalized the existing situation, where the Palestinian economy was merged into the Israeli one.
Israel has occasionally withheld the taxes it owes the PA. Until 1967, the West Bank was subject to the Jordanian system of taxation, while Gaza to the Egyptian.
[a] Similarly the self-employed West Bankers appeared to pay more than their Israeli counterparts, but due to the different deductibility regimes, clearer conclusions about discriminations could not be ascertained.
[6] Access to most public services in areas under Israeli control is conditional on proof one is not in arrears with paying one's taxes, income, property and value-added (VAT) and fines, to the military administration.
The draconian provisions of Section 194 of the Israeli Income Tax Ordinance, allowing taxation officers to assess what a taxpayer may owe while limiting challenges, and making them conditional on the prior payment of a bond, rarely applied in Israel, has been routine in the West Bank.
[e] Likewise, imprisonment for tax offenses is uncommon in Israel but, according to Lazar, "in the territories it is used on a massive scale and for extensive periods of time.
"[8] Palestinians deeply resented paying taxes on their business and commercial activities to the Occupation authority without receiving the same benefits Israeli taxpayers had in return.
[12] In 1989, the relatively affluent entrepreneurial Christian town of Beit Sahour, in response to military repression organized a sumud-inspired non-violent boycott of Israeli consumer products in favour of Palestinian-Jordanian wares, and shortly afterwards refused to pay taxes to the occupying power on the basis of the slogan "No taxation under Occupation"[13] and the principle of the American colonial revolt against their British masters, namely No taxation without representation.
[12][15] As a result, the IDF placed the town under total curfew for 42 days, blocking food imports, cutting telephone lines, impounding private cars, arresting over forty community leaders, who received year-long gaol sentences, and confiscating cash and property found in house raids amounting to millions of dollars, and one period seizing $US 1,500,000 worth of goods from 300 families, including living room furniture, fridges and stereos which were then sold in Israel at auctions.
[32] Israel was also proposing to withhold the amount that the PA pays to security prisoners and their families, which total NIS 100 million a month.