VAT jumped up 1% on 1 June with many saying it will hit their spending power hard.
Video courtesy of jn1.tv
"We have to raise our VAT from 15% to 16%," says Samir Abdallah of the Palestine Economic Policy Research Institute. "This is one percentage point. Maybe it is insignificant, but it means for people who have limited salary and who spend most of their income on food – something like this will affect their purchasing power."
According to agreements signed following the 1993 Oslo Accords, the difference in VAT tax rates between Israel and the Palestinian Authority can be no more than 2% - a rule designed to prevent Israelis from travelling to the Palestinian territories in search of cheaper goods.
Israel raised its tax on Saturday night to 18% as part of a series of austerity measures set to be introduced to combat a growing deficit, and thus the Palestinians had to follow suit. However, the move may exacerbate longstanding economic problems in the territory.
The tax applies to imported goods, which make up the vast majority of the products available to Palestinians in the West Bank, with consumer goods and food making up much of the imports.
Some Israeli security policies also limit the Palestinians' ability to import and export, which has hampered growth, although the Jewish state has taken steps – such as removing military checkpoints – to ease movement in and out of the territory.