JERUSALEM, Dec 29 (Reuters) - Israel will withold around $43 million in tax handovers to the cash-strapped Palestinian Authority (PA) over its financial support for the families of slain or wounded Palestinian militants, the Israeli security cabinet said on Sunday.
The decision followed Israel's similar trimming in February of funds to offset PA payouts to jailed Palestinian militants, for which the PA retaliated by boycotting all tax handovers for more than half a year, stirring worries it could go bankrupt.
Under interim peace deals from the 1990s, Israel collects taxes on behalf the Palestinians, who put the current sums at $222 million a month. With diplomacy stalled since 2014, Israel has at times withheld money as a measure of protest or pressure.
Palestinian President Mahmoud Abbas, though hit by steep U.S. aid cuts by the Trump administration, has held to paying stipends to the families of Palestinians jailed as security offenders or those killed or wounded by Israeli forces.
Israel and the United States say the policy, which is scaled to give greater monthly payouts for prisoners serving longer sentences, invites violence. Abbas describes the Palestinian imates and casualties as heroes of a national struggle.
Saying Abbas administration had paid 150 million shekels ($43.37 million) in stipends for militant casualties in 2018, the Israeli security cabinet said the same amount would be garnished from within the taxes collected for the PA over the coming year.
There was no immediate PA reaction to Sunday's decision.
The sum Israel said it would trim as of February was $138 million - reflecting prisoner payouts by the PA during 2018.
The total amount of money witheld now equals some 6.8% of tax funds due the PA. The full remittances make up around half of the budget of the PA, which exercises limited self-rule in the Israeli-occupied West Bank.
The United States passed legislation last year to sharply reduce aid to the PA unless it stopped the stipends. The measure, known as the Taylor Force Act, was named after a 29-year-old American military veteran fatally stabbed by a Palestinian while visiting Israel in 2016.
Washington has further slashed hundreds of millions of dollars to humanitarian organizations and U.N. agencies which aid the Palestinians as it seeks to pressure Abbas to come back to the negotiating table.
Abbas has shunned the Trump administration, accusing it of pro-Israel bias. (Writing by Dan Williams; editing by Nick Macfie)