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Taxing times

Taxing times

Taxing times

Spurred on by Israel's three-year-long draconian siege, Gaza is now in the grips of a vicious liquidity crisis, writes Saleh Al-Naami

Ghassan Ibrahim, 45, a teacher, was visibly desperate after some hours of scouring the stores for a pack of cigarettes. The price had suddenly shot up following the Ismail Haniyeh government's decision to levy a tax of three shekels per pack. "Regardless of the government's justifications, the decision to raise the price of cigarettes is hard to understand against the backdrop of the deteriorating economic conditions that have been aggravated by the more than three-year-old blockade of Gaza," he said.

A pack of cigarettes that once cost five shekels ($1.35) now sells for eight ($2.07). Even so, the price hike would not make him give up cigarettes or even cut down. "This is not the right climate for taking such a decision," he said frowning.

Abdel-Rahman Abu Auda, 47, a livestock breeder and merchant who has been hard hit by the economic straits, told Al-Ahram Weekly that it would be very hard for him to kick his 33-year-old habit, but he hoped to persuade his son, Ahmed, to give up smoking. Abdel Rahman pays for his son's cigarettes as well as his university education. "The amount of money I spend on our cigarettes is almost enough to feed a family of 10. One of us has to quit," he said.

Cigarettes are not the only commodities affected by the Haniyeh government tax policy. The measure extends in particular to goods being smuggled through clandestine tunnels and whose prices have soared due to scarcity. Yet Haniyeh's deputy prime minister and minister of economy denies that the cigarette tax is new. Ziad Al-Zaza insists that his government has only "put into effect a decision taken by previous governments". He maintained that the government that was in place before the last legislative elections had imposed a 4.7 shekel tax on cigarettes. At the time, a pack sold at between 12 and 17 shekels, depending on the brand. Now, under the current circumstances, prices have dropped to a maximum of 10 shekels.

Some government sources claim that the cigarettes tax was intended to reduce the number of smokers in Gaza. But many are unconvinced by this argument and suspect that the policy was prompted by the government's financial straits, which compelled it to pay its employees only part of their monthly salaries, which average at about $400 per month.

Gamal Nassar, a member of the Hamas leadership in Gaza and chairman of the legislature's Finance Committee, attributes the government's inability to pay salaries to a liquidity crisis. He told the Weekly that there was no problem in raising the necessary amount of money; rather, the difficulty lay in getting it transferred from abroad into Gaza. "Palestinian and Arab banks operating in Gaza won't make the transfers to the Haniyeh government because they aren't willing to go against the US government which has branded Hamas a terrorist organisation," he said.

But there is another side to the problem, which is that many companies and service providers, such as banks and telecommunication and cell phone companies, stopped paying taxes to the Haniyeh government. According to Nassar, 90 per cent of the government's income now comes from outside donations. He refused to disclose the sources of these donations or the means used to transfer the money into Gaza. On the other hand, he urged the Egyptian government to lift the blockade on the Palestinians in Gaza, stressing that its strategy would never attain its objectives. The "state of conflict", as he described the current situation, "requires us to be firm and steadfast".

Although Nassar said that serious efforts were in progress to overcome Gaza's financial problems, he refused to reveal the nature of these efforts or the parties involved. He did point out that the Salam Fayyad government had also been forced to defer dispensing civil servant salaries for several months.

According to economic affairs journalist Hamed Jad, Hamas's sources of finance abroad have not been affected, confirming that the problem resides in a lack of cash, for which reason senior government employees have still not received their February paychecks. In an interview with the Weekly, Jad held the government's recent decision to impose a fuel tax largely responsible for the liquidity crisis. He stated that this crisis did not stem from any drying up of sources of funding, but rather from dwindling channels for transferring funds. Tunnels and currency exchange bureaus were among the most important of such channels. However, the real source of the crisis, he said, was the Israeli Central Bank's decision to stop dealing with banks operating in Gaza, a decision that created a severe hard currency shortage.

Gamal Arshid, 34, goes home via a detour that takes him through the side streets of Al-Nusairat Refugee Camp. His normal way home along the main street takes him by the grocers where for two months running he has been unable to pay the bill he owes. Arshid is one of thousands of government employees who have received only a part of their ordinary paychecks. In his case, this came to only 1,500 shekels ($300) of his usual 2,500 shekels ($500) a month. The money he managed to borrow is barely enough to support his six-member family. Not only are around 22,000 government employees in the same position, top administrators have not received any salary at all for the third month running.

The crisis has already had a major impact on many civil servants who fear that their current financial straits will continue. After having to postpone his wedding several times due to lack of sufficient funds, Khalil Shati, 25, persuaded his fiancé and her family to agree to major changes in their plans for the happy occasion. In order to cut back on expenses, they would hold the wedding banquet in the groom's home instead of in a banquet hall and they would cut down the number of guests to only a few relatives, neighbours and friends. For a society accustomed to large and lavish wedding feasts, such an arrangement is almost like no celebration at all, Khalil pointed out despondently.

The cash flow crisis has also aggravated the already stagnant commercial life in Gaza. Markets in the Strip usually perk up for a while at the beginning of each month, which is when storeowners dust off their wares and street vendors set up their displays on the sidewalks near banks so as to catch potential customers as soon as they have cashed their paychecks. But even this brief period of business has been sluggish. Meanwhile, against the backdrop of an unemployment rate that has surpassed 60 per cent, university graduates are scrambling to find even the most menial and dangerous jobs in order to feed themselves and their families.

Sometimes Alaa's neighbours are startled out of their sleep in the middle of the night by the sound of his knocking on the door of his home in central Gaza following a long day's work in one of the tunnels used for smuggling goods from Egypt into Gaza. Alaa, 26, has a BA in sociology and is fortunate enough to have a sturdy build. After months of looking for a job, all he could find was the risky and strenuous work of digging tunnels to support two ailing parents and six siblings. He told the Weekly, "I was faced with the choice of working in the tunnels or turning myself and my family into beggars. I readily chose the tunnels, although anyone who contemplates working in them should know that they could die at any moment."

The link: http://weekly.ahram.org.eg/2010/998/re1.htm