The Palestinian Authority is scaling back wages paid to its employees in response to a cash crunch deepened by a dispute with Israel over payments to families of militants in Israeli jails, it said on Sunday.

In February, Israel announced it was deducting five percent of the revenues it transfers monthly to the Palestinian Authority (PA) from tax collected on imports that reach the occupied West Bank and Hamas-run Gaza Strip via Israeli ports.

Israel said the sum represented the amount the PA pays to families of Palestinians jailed in Israel or killed while carrying out attacks or other security offences.

Palestinians see their slain and jailed as heroes of a national struggle but Israeli and U.S. officials say the stipends fan Palestinian violence and are scaled so relatives of prisoners serving longer sentences receive larger payments.

After Israel’s deduction announcement, Palestinian President Mahoud Abbas said the PA would not accept any of the tax revenues, which totaled 700 million shekels ($193 million) in January and account for about half of the authority’s budget.

As a result, Palestinian Finance Minister Shukri Bishara said the PA would pay full salaries - which had been due on March 1 - only to its lowest-earning employees, or the 40 percent of its workforce that takes home 2,000 shekels ($550) or less a month.