Fayyad says the showdown over taxes is as much about the obligations of citizenship as about balancing the books. This transcends money and finance, Fayyad told The Associated Press.

The tax hike mainly targets the top earners, doubling the maximum rate from 15 percent to 30 percent. Business leaders complain that they're being burdened unfairly and are threatening to refuse to pay.

We'll fight back, said Samir Hleileh, CEO of the $700 million holding company Padico, one of the largest firms in the West Bank. He argued that Fayyad's move will undermine his own policy of encouraging private investment as the main motor of growth in a fragile economy shackled by continued Israeli restrictions on trade and movement.

Fatah, the movement headed by Fayyad's boss, President Mahmoud Abbas, also opposes the tax increase, though Abbas himself has not yet taken a position. A leader of the civil servants' union, dominated by Fatah, argued that the tax hike will lead to higher prices for goods and services and eventually hurt the poor, still a majority of Palestinians, and a small but growing middle class.

Everyone I know is against it , everyone I know is talking about it, said Omar Matar, a 28-year-old waiter in a Ramallah restaurant whose monthly salary of 3,000 shekels ($793) means that even under the new rules he'll only pay 5 percent income tax. Matar complained that living expenses are high, services substandard and that he is unable to save for a down payment for a home.

Jamal Muheisen, a senior Fatah official, said Palestinians cannot be expected to carry an additional tax burden as long as they live under Israeli rule, without a state of their own.

The occupation is the main reason for our crisis. Once we get rid of the occupation, we will have no financial problems. In the meantime, the international community should handle this problem, he said.