By Ahmad Sub Laban (Palestine Report, January 30, 2002)

SINCE THE start of this uprising, the Palestinian tourism sector has spiraled downward towards disaster. Of all the Palestinian cities, Israeli-occupied East Jerusalem has been hit the hardest. Hotels, tour bus companies, restaurants, travel agencies and other services have all suffered a devastating recession since September 2000. Many companies have accumulated piles of unpaid debts and are now threatened with bankruptcy.

The tourism industry in the holy city is integral to the Palestinian tourism sector as a whole and the vitality of the Palestinian economy. In Jerusalem alone, there are over 7,000 workers employed in the tourism industry, providing income for thousands of Palestinian families. Today, the majority of those people find themselves out of work because of the deteriorating economic situation.

The reasons for this downturn are many. First and foremost is the regional security outlook, which has led to a noticeable decline in the numbers of tourists coming from abroad. Also, the many roadblocks and closures isolating Palestinian cities from one another have dramatically impacted internal tourism. The tourism industry is lacking its one essential component - the tourist.

But East Jerusalem in the heart of the country has not been impacted by these factors alone. The many taxes imposed on tour operators in Jerusalem, in particular the Arnona or Israeli property tax collected by the Israeli West Jerusalem municipality, have also dramatically impacted the life of this industry. The tax makes it difficult to compete - it is not imposed on tour operators in areas under Palestinian Authority control. In addition, because Palestinian tour operators have a lower average income than their Israeli counterparts, they say that for them to pay the same taxes is fundamentally unfair.

"These taxes only add to the financial problems faced by Arab hotels in Jerusalem," says Fahmi Nashashibi, head of the Arab hotel association in Jerusalem. He said that the effect of taxation in East Jerusalem could be an even greater crisis than the current economic downturn.

Nashashibi says the Arnona is particularly difficult for Arab hotels to cope with, because their owners are forced to pay it even if they have no income. "They have to pay it even if the hotel is closed," he says. If the tax is not paid, the municipality can seize the hotel's assets - both financial and material. This is already causing problems for the Panorama Hotel near East Jerusalem's main thoroughfare.

The Arab hotel association has met several times with the Israeli municipality and asked it to lower the high Arnona fees, says Nashashibi. But the requests fell on deaf ears. In fact, he says that the municipality threatened the hotels that if no agreement were reached, the hotels would be required to pay the taxes due or face a series of measures from the municipality.

"The state of tourism is very bad," said head vice president of the souvenir stores society in Jerusalem, Ghassan Abdeen. He says that since tourism has virtually stood still in the city, so has the primary source of income for tourist shops. "Naturally, this has affected 100 percent of the merchants with souvenir shops in Jerusalem who depend primarily on tourists to sell their products."

The impact has been overwhelming. Abdeen says that of the 500 shops in Jerusalem's Old City prior to the Intifada, 250 have closed their doors.

Due to the drop in income, some souvenir shop owners were unable to pay their taxes, says Abdeen. The municipality almost always follows up.

While the souvenir stores society has lobbied to get the Arnona lowered, along with the value of accumulated back taxes owed by storeowners, Abdeen says this has not worked. The municipality refused the proposal. Further, since the beginning of the new year, souvenir shop owners have started receiving warnings from the municipality that if they do not pay their taxes they will be subject to municipal enforcement.

Abdeen's story has been confirmed by a number of Old City shop owners. Assem, who owns a shop in the Old City's Christian quarter, says he received a warning to pay the money he owes for Arnona. He then went to the municipality to ask to pay the amount in installations for fear that the municipality would seize his store and assets. "Now, I can't afford to pay the electricity bill or the phone bill at the store, but I have to pay the Arnona. I can't risk my store being seized or my merchandise being confiscated."

Assem says that the Arnona and other taxes are a real problem for storeowners in light of the lack of tourism. The shop owners that have received warnings that they must pay their taxes are now at the edge of a dangerous precipice. If they can't pay, their property may be seized by the Israeli municipality, drastically affecting the tipping demographic balance of the city.

The most recent example of this is the story of the National Palace Hotel in East Jerusalem. The hotel was threatened with being put up for auction if it did not pay its loan taken from the Israeli Mercantile Discount Bank for the value of $2.2 million in order to renovate the hotel, which has been closed for three years. It also had to pay back taxes, including the Arnona.

But in the case of the National Palace Hotel, the Palestinian Financial Organization Company paid the hotel's debts because of the National Palace's importance as a tourist landmark in occupied Arab Jerusalem. If the company had not stepped in, Israeli buyers would most certainly have purchased the hotel.

While the well-known National Palace was lucky enough to find an organization to fund its salvation from auction, smaller shops in Jerusalem have no such influence.

Walid Qawasmi, owner of a tourist restaurant near the Old City's Church of the Holy Sepulcher wonders how long this will go on. "How long can we hold out without help?" he asks. "Since the beginning of the Intifada, we have stayed strong in the face of this crisis, which is aimed at stripping Jerusalem of its Arab identity and Judaizing it."

He believes the Israeli emphasis on tax collection from souvenir stores is intended to exert Israeli control over Arab areas by seizing the shops and the goods of whoever fails to pay. "They do this even though they know very well that the Palestinian citizen right now cannot provide the basic necessities of life, much less pay huge amounts of money for these taxes."

Qawasmi says that he is forced to pay the taxes he owes, even if he has to borrow the money. He remembers all too well during the first Intifada when his shop was seized and its contents confiscated. Then he almost went to prison for not paying the Arnona.

Despite the poor economy, Qawasmi is forced to continue filing as if his restaurant is up and running and bringing in a monthly income. The restaurant is located just under a Jewish synagogue, which makes the property desirable for Israeli buyers - and watched by those waiting to purchase land in the Old City.

"They tried everything to take over my restaurant," says Qawasmi. "They even offered me $2 million to sell it." That is why he must say that his restaurant is open, otherwise, according to Israeli law, he would be forced to close it and his license would not be renewed. "If I lose my license, I would have to close the restaurant and if the restaurant closes, by Israeli law it would be confiscated," he explains.

Israel retains the right to lawfully confiscate land rented from the Custodian of Absentee Properties (meaning the property returns to Jewish ownership) if the property is not used or stands vacant for more than six months. Qawasmi, like many others, rented his restaurant from the Custodian (which, it is important to note, administers land confiscated from Arabs).

While Walid Qawasmi has been able to gather up enough money to pay off his debts despite the financial strain, Fayyad Abu Rmeileh has not been so lucky. Abu Rmeileh also owns a restaurant in the Old City but was forced to close his doors at the beginning of the Intifada.

"The deteriorating economic situation in the tourism sector has affected me 100 percent," says Abu Rmeileh. He could not pay the restaurant's expenses nor could he pay municipal taxes. He received a warning and a NIS 1,000 $200] fine for his delay in paying the Arnona, which itself amounted to NIS 6,400 [$2,550] for the year 2000. After he paid the fine, he began paying the Arnona tax in installments. But he had paid only three installments when the second fine for the 2001 Arnona tax arrived. That fine proved just too much, especially since his restaurant was already closed. The municipality soon seized the restaurant's property.