The Palestinian Authority will put into effect a recently approved decision to raise Value Added Tax by 1 percent by the beginning of September, a VAT official said Sunday.

Ahmad al-Hilou, the director general of customs, taxes and VAT told Ma'an that the PA was obliged to raise VAT from 14.5 percent to 15.5 percent because of binding terms in the Paris Economic agreement between Israel and the Palestinian Authority.

According to the terms, disparity between VAT in Israel and PA controlled areas should not exceed 2 percent.

"When Israel raised VAT to 17 percent, we had to raise our VAT so as to maintain the Paris Economic Agreement," al-Hilou said.

Raising VAT by 1 percent will add 80-90 million NIS ($20-30 million) to the PA's treasury every year, al-Hilou said, adding that the PA collected 3.1 billion NIS ($750 million) in taxes in 2011. The collection rate has increased by 55 percent since 2008. 

Days before the VAT rise was announced last week, the PA raised taxes on cigarettes and tobacco products.

Bandi Dahdah, director of the customs and tobacco department of the PA Ministry of Finance, said the tax increase would mean a 2-2.50 NIS price increase on local and international brands of cigarettes.

The move was in line with a similar decision taken by Israel's Ministry of Finance.