Wages and Salary Tax and Its Impact on Palestinian Treasury (2004-2007)

Abstract This study aimed at analyzing and discussing income tax imposed on wages and salary tax and its impact on the Palestinian National Authority’s treasury (2004-2007), after its rate of collection had matched other Palestinian revenues and the amount of attrition of the treasury to spend on it and its contributions to public expenditures. Further, the study examined the effect of this tax on government employees and public sector’s institutions as well as the private sector’s employees and companies, bodies and small enterprises. The researcher studied the wages and salary taxes and their effect in the light of the Palestinian Income Tax Laws: Draft of Income Tax Law of 1997, Law# 17 of 2004 and the Amended Law# of 2008. The researcher sought to do that in order to identify the variables which have developed in this type of tax collection and its effect on the treasury under these laws.The significance of this study stems from the importance of this type of tax collection for the future development of Palestine through its direct effect on the two sides of Palestinian treasury. This study to deal with tax imposed on public wages in Palestine. To complete this study, the researcher made active use of secondary sources, namely books and references, reports and publications of the Palestinian Finance Ministry. In addition, the researcher depended on primary sources. She conducted interviews with high ranking officials from the finance and labor ministries. After data collection, the researcher used the analytical descriptive method to analyze the results. After that, the data were fed onto the computer and were statistically processed in the light of the study objectives. To test the study hypotheses and questions, the researcher used SPSS, frequencies, percentages, T-test for two independent variables and MANOVA using Lamba's and Sidak's tests. Study Findings 1.The Palestinian tax laws had developed according to other Palestinian developments and had taken into consideration the human and social dimensions and had given them more importance and concern than the Palestinian treasury revenues. The laws focused on exemption and discounts to help and support a wide base of vulnerable classes such as the poor. The laws had expanded and narrowed the category of tax payers without paying any interest to the negative impact of such measures on the treasury. On the other hand, the laws had sought to help and support the private sector through other promotion tax laws in order to realize other revenues for the treasury. In so doing, the tax laws had wanted to strike a balance between realization of social justice and Palestinian treasury revenues. 2.The income tax on wages evolved according to the general situation in Palestine between 2004-2007. The income tax showed differences in the average of tax collection proceeds from wages/salaries in the West Bank in the governmental sector between 2004, 2005 and 2006 in favor of 2006 and between 2004, 2005 and 2007 in favor of 2007. 3.The income tax on wages evolved according to the general situation in Palestine between 2004-2007. The income tax showed differences in the average of tax collection proceeds from wages/salaries in the West Bank in the private sector between 2004 and 2005 in favor of 2005 and between 2004 and 2007 in favor of 2007. 4.There were differences in average of collection of taxes, imposed on salaries and wages in the Gaza Strip, between 2004 and 2005 in favor of 2005 and between 2005 and 2006-2007 in favor of 2005. 5.There were differences in average of collection of taxes, imposed on salaries and wages in the West Bank and Gaza Strip, between 2004 and 2005 in favor of 2005 and between 2004 and 20064 in favor of 2006. 6.There were differences in average of tax collection imposed on salaries and wages between the West Bank and the Gaza Strip, during the same years, in favor of the West bank. 7.It was found that rate of tax proceeds from the private sector’s salaries and wages had decreased more dramatically during the same period (2004-2007). 8.It was also found that the rate of tax collection from both the public and private sector’s salaries was higher than the overall collection from income tax. The tax collected represented about half of the total collection of income tax. 9.The rate of collection from salaries and wages of the two sectors had risen compared with tax revenues and non-tax revenues and Palestinian public revenues. 10.Pertaining to expenditures, the study revealed that spending on salaries and wages had been higher when compared with other Palestinian expenditures. Also spending on salaries and wages was at the expense of the investment sector. In the light of the study findings, the researcher recommends the following: 1.Modification and expansion of tax categories in order to increase treasury revenues. This will include the private sector’s employees; modification of exemptions in a way that suits/helps the poorest classes. In this way, the rich classes will not receive the same tax holidays, thus realizing social justice and enough revenues for the treasury in a balanced way. 2.The Palestinian lawmaker has to set up a minimum wage and link it with the general economic situation and consumer price index to guarantee positive revenue for the treasury. At the same time, the lawmaker has to pass laws to prevent exploitation of employee, by employers, and maintain a bottom line of standard of living which is above than the poverty line. 3.The Palestinian Finance Ministry has to spell out all exemptions and discounts in the form of a percentage in lieu of a financial value and in a way that considers the Palestinian economic and political developments. 4.The Palestinian government should decrease current expenditures in order to prevent inflation of the government sector and direct a significant percentage of expenditures to the development sector and the private sector as well, for the latter sector is the biggest tribute to the state treasury. 5.The Palestinian public sector and the private sector should establish an institutional partnership in order to reduce the budget deficit.