Brigadier General Gadi Zohar, head of Israel's Civil Administration, and Palestinian finance chief Mohammed Zuhdi al-Nashashibi signed the tax transfer agreement at a ceremony in the West Bank town of Ramallah.
"Taxes are the bride-price of independence and the key to democracy and participation," said Atef Alawneh, director general of the Palestinian finance ministry.
"We must say a word to the taxpayer. The avoidance of taxes under occupation was a national struggle worthy of praise," he said, "but now it is 180 degrees different. Now delay in paying means delay in building the Palestinian state."
Responsibility for health services -- along with taxation, the last of the five spheres that Israel agreed to hand over as part of a self-rule deal signed with the Palestine Liberation Organization last year, was transferred in a separate ceremony in the West Bank town of Nablus.
The tax handover comes one day after a group of donor nations agreed in Brussels to an emergency injection of $148 million to shore up the troubled Authority.
An additional $23 million was earmarked for an urgent job-creation program aimed at putting up to 5,000 more Palestinians to work in a matter of weeks and generating employment for another 10,000 to 15,000.
The Palestinian Authority has been strapped for cash since it took power in Gaza and Jericho in May. PLO leader Yasser Arafat and Israeli Foreign Minister Shimon Peres warned this week that failure to provide more funds for the authority would place the entire Middle East peace process in jeopardy.
The aid promised by donors is an essential stopgap, but a proper tax base is seen as vital to the long-term success of Palestinian self-rule.
Experts say the West Bank, richer than Gaza, provides the natural tax base for the Authority and could turn things around. Israel collected about 280 million shekels ($90 million) in income and value-added taxes in the West Bank in 1993.
But a senior civil administration official responsible for tax collection estimated this represented only 20 percent of the total owed, meaning the Authority could collect hundreds of millions of dollars per year from the West Bank.
?Egyptian President Hosni Mubarak made a surprise visit to Damascus on Thursday for talks aimed at breaking the deadlock on peace between Israel and Syria, but President Hafez Assad insisted that Israel was making "impossible demands." (Reuters, LAT)
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