On August 29, 1994, the Agreement on Preparatory Transfer of Powers and Responsibilities was signed by Israel and the Palestinians. The Agreement puts into effect the next phase (early empowerment) of the Declaration of Principles, as follows:
Spheres of Authority: The Agreement on Preparatory Transfer of Powers and Responsibilities, in accordance with the DOP, provides for the transfer of powers to the Palestinian Authority within five specified spheres:
Education and Culture: responsibility over higher education, special education, cultural and educational training activities, institutions and programs, and private, public non-governmental or other educational or cultural activities or institutions.
Health: authority over all health institutions, whether private, public, non-governmental or other.
Social Welfare: authority over governmental and non-governmental organizations and institutions, including charitable societies and institutions and voluntary and non-profit organizations.
Tourism: regulating, licensing, grading, supervising and developing the tourist industry.
Direct Taxation: The DOP provides for a transfer of authority regarding direct taxation. Accordingly, the Palestinian Authority will establish a revenue collection system to collect income tax. Property tax will be collected by Israel and transferred to the Palestinian Authority. In addition, it was agreed to transfer the sphere of indirect taxation (Value Added Tax) to the Palestinian Authority as an attempt to ensure a balanced budget.
Indirect Taxation: This is an additional sphere, agreed upon on August 29, 1994. VAT will be collected on local production in the West Bank - outside the settlements and the military locations. This sphere was added to help fill the short fall that will occur while the tax system is being set up.
Jurisdiction: In accordance with the DOP, the jurisdiction of the Palestinian Authority with regard to this agreement does not include Jerusalem, settlements, military locations and, unless otherwise provided for in this Agreement, Israelis.
Smooth Transfer of Authority: The Israeli authorities will assist and support the Palestinian Authority in promoting the effective implementation of the transfer, including turning over all information on budgets and providing the services of Israeli experts. The Palestinian Authority in turn will prevent activities with military orientation, and will coordinate with the Israeli authorities regarding any large-scale events.
Legislation: The Palestinian Authority may promulgate secondary legislation, such as regulations within the spheres transferred to it.
The procedure for enacting legislation gives the Israeli authorities an effective veto over such legislation when it
exceeds the powers and responsibilities transferred to the Palestinian Authority,
is inconsistent with the Agreement, or
affects legislation, power and/or responsibilities which was not transferred to the Palestinian Authority.
Enforcement: The Palestinian Authority may authorize employees in each of the spheres to act as civilian inspectors to monitor compliance with the laws and regulations. These inspectors are not police, and cannot carry arms, wear uniforms or organize into a central unit. These names will be submitted to Israel, and those afforded special privileges must be approved by Israel.
Funding: The Palestinian Authority and the Israeli authorities jointly approached the donor countries for funding designed specifically to offset the shortfall that may be created in the collection of taxes during the initial period while the Palestinian Authority establishes its own revenue collection system.