Protection Fees Emerge as Informal Tax on Israeli Economy

The phenomenon of "Khawa," or protection money, is increasingly impacting Israel's economy, acting as an unofficial tax that affects businesses and public projects. A July 2026 report from the Knesset Research and Information Center estimated the economic cost of protection fee collection in Israel at approximately 13.8 billion shekels annually, with 6.5 billion shekels being direct costs. This figure encompasses not only payments made by business owners but also property damage, lost production, reduced economic initiative, and security expenses. The report highlights that the actual scale of the problem is likely underestimated due to a lack of reporting.

Evidence of "Khawa" influencing economic activity is visible in government tenders. Representatives from the Union of Chambers of Commerce have stated that Arab business owners participating in tenders often increase their bids by about 5% to account for protection costs. This means that the added cost of extortion can be passed on to the final price of projects funded by public or private entities, integrating "Khawa" into the competitive economic landscape.

A more detailed picture emerged from an April 2026 State Comptroller report. A February 2025 survey of around 450 contractors and developers revealed that 87% had been asked to pay protection money. Consequently, 47% avoid participating in tenders when aware of criminal links among competitors. Economically significant findings showed that 50% of respondents reported protection payments increased project costs by 250,000 to 500,000 shekels on average, with others reporting even higher increases.

The economic damage extends beyond direct payments and property damage to include lost investment opportunities. Businesses may choose not to open in certain areas, contractors may withdraw from bids, or investors might postpone expansion due to the risks associated with extortion. This results in uninitiated projects, uncreated jobs, and lost economic activity and revenue for local authorities.

Insurance companies also face challenges. In one February 2026 case presented to the Knesset Economics Committee, a transportation company owner whose buses were burned and family threatened was denied insurance compensation. This situation forces businesses to absorb more risk themselves, potentially leading to increased operational costs even without direct attacks.

Compounding the issue, a significant portion of these incidents go unreported. The State Comptroller's report indicated that 75% of surveyed contractors and developers did not report protection fee demands to the police, citing fear as a primary obstacle. This lack of reporting creates a cycle where the problem's scope remains unclear, hindering effective policy development and intervention. The article concludes that "Khawa" functions as an unofficial tax, extracted under threat without providing any legitimate service, and its economic impact is far-reaching, affecting investments, jobs, and overall market function.