Israel grants settlements tax exemptions at a cost of $35 million annually economy

The Israeli Knesset approved, in final reading, a law granting tax exemptions to dozens of settlements in the occupied West Bank, in a move that sparked criticism from the opposition and Israeli organizations that considered it additional support for the settlement project at the expense of other areas affected by the war.

32 members of the Knesset approved the law, compared to 23 opponents, at the initiative of MP Zvi Sukkot from the “Religious Zionism” party and MP Limor Son Har-Melech from the “Jewish Power” party.

The law stipulates the creation of a new classification under the name “Eastern Front Line Area,” allowing residents of about 58 settlements in the West Bank to obtain tax exemptions from January 2026 until the end of 2027, with the possibility of extending it for additional periods not exceeding two years each.

Support for settlements

According to the text of the law, the settlements eligible to benefit must be located more than two kilometers from the separation wall, and must meet specific security and social conditions, including the use of armored vehicles to transport students.

The Israeli Tax Authority estimated the cost of tax exemptions at about 130 million shekels annually (about 35 million dollars).

Israeli Finance Minister Bezalel Smotrich said that the law corrects what he described as “historical injustice” against settlement residents, considering that it constitutes an additional step towards achieving the goal of raising the number of settlers in the West Bank to one million people.

He added that the step represents a “new phase” in the settlement expansion project, noting that it falls within a broader goal of raising the number of settlers in the West Bank to one million, which, according to him, contributes to preventing the establishment of a Palestinian state in the future.

Opposition criticism

On the other hand, opposition parties accused Smotrich of using state resources to direct more support to his electoral base in the settlements before the elections expected next September or October.

The opposition also criticized the Minister of Finance’s insistence on passing the law at a time when aid allocated to the northern regions affected by Hezbollah attacks is still facing delays in disbursement.

Israeli reports indicated that the government had discussed expanding the scope of exemptions to include towns located on the northern border, but political differences prevented this.

In an attempt to contain the criticism, Prime Minister Benjamin Netanyahu announced this week the approval of an additional support package for the northern regions worth 13 billion shekels (about 4.5 billion dollars), but the leaders of those regions say that a large portion of the aid is still frozen within the Ministry of Finance.

Settlement expansion

The law comes within a broader policy pursued by the current Israeli government to encourage settlement expansion in the West Bank through financial incentives and government support.

Recent years have witnessed an acceleration in approvals for the construction of new housing units and the legalization of settlement outposts that were considered illegal even according to Israeli law.

According to estimates by the Peace Now movement, more than 750,000 Israeli settlers reside in the West Bank, including East Jerusalem, at a time when the international community considers the settlements established on the occupied Palestinian territories illegal under international law and an obstacle to the two-state solution.