If Mideast Leaders Raised Taxes, They Would Become More Accountable

If taxation is at the core of representation, does the inverse hold in the Middle East: that without taxation, there is no representation?

Khaled Diab is an Egyptian-Belgian journalist, blogger and writer who has spent about half his life in the Middle East, including nearly two years in Jerusalem, and the other half in Europe. Follow him at @DiabolicalIdea
Khaled Diab
Egyptian women protest in Tahrir Square in Cairo, Egypt, Nov. 26, 2011.
Egyptian women protest in Tahrir Square in Cairo, Egypt, Nov. 26, 2011.Credit: AP
Khaled Diab is an Egyptian-Belgian journalist, blogger and writer who has spent about half his life in the Middle East, including nearly two years in Jerusalem, and the other half in Europe. Follow him at @DiabolicalIdea
Khaled Diab

The only certainties in life are death and taxes, sages from Benjamin Franklin to Daniel Defoe have been informing us for centuries.

In the Middle East, death is becoming an ever-more probable prospect of increasing ugliness and savagery. But taxes are a very different matter. Compared with Europe, America and other industrialized economies, most of the region’s taxation levels and tax revenue are very low.

The most extreme examples are the petroleum-producing states: Oman’s tax revenues account for 2.5% of its GDP, while Bahrain and Kuwait’s are even lower, about 1% (compared to Israel’s 30% and the U.K.’s 36%). This is because most Gulf countries, flush with oil revenues, impose little-to-no taxation on their citizens and corporations.

Even in countries not rich in oil, governments collect surprisingly little in the way of taxes compared with their Western counterparts. In Egypt, tax revenue hovers at around 13-14% of GDP.

The inability or unwillingness of countries in the region to tax their citizens has far-reaching implications.

Imposition of taxes by the state was a major factor in the emergence of democracy in Western Europe. Though it may be largely forgotten today, democratic participation was once contingent on the state’s financial dependence on its citizens. In Britain, property was the defining feature of the electoral system until after World War I.

In a way, this is the stage much of the Arab world is at right now. Through backdoors and informal channels, the wealthy and the upper-middle classes can influence the direction of the state and have their rights protected – far more so than the masses.

Today, the West lives in a more enlightened age and every citizen possesses an equal right to vote. But the basic premise remains unchanged: The government takes money from the citizenry, and so citizens have the right to choose the government and hold it to account.

If taxation is at the core of representation, does the inverse hold: that without taxation, there is no representation?

While numerous complex factors affect the level of authoritarianism in the Middle East, political participation and democracy seem to be (loosely) correlated to the level of taxation.

The oil-rich states tend to be the most autocratic. This is both because the rentier state, as it is known, is not beholden to its citizens for its survival and can use its wealth to purchase influence and silence or ignore demands for reform. However, in the poorer Arab countries this tacit social pact has broken down, and it is teetering on the verge of collapse in the wealthier states. It would not be a stretch to say that in the poorer countries, the state plays little to no (positive) role in the lives of its underprivileged citizens, and people are increasingly relying on the informal economy for employment and sustenance. That is why “bread” and “social justice” were two of the revolution’s main demands.

This raises the intriguing question of why it is that, though higher taxation is in the interests of both the state and its citizens, neither side seems terribly interested in broadening the tax base.

Middle Eastern regimes do not have the authority or credibility to collect more taxes. More importantly, it appears they would generally prefer to enjoy a monopoly of power in an emaciated and failing state than to share power with citizens in a more vibrant, powerful and robust political partnership.

The motives of citizens are more complex. Naturally, taxes are unpopular almost everywhere. In the Middle East, more so.

In much of the Ottoman Empire, peasants and workers were heavily taxed under a system known as Ilitizam, or “tax farming”. This double taxation had a devastating effect, such as depopulating entire villages in Egypt.

The situation did not improve with Western rule. After European lenders had helped to bankrupt Egypt during the construction of the Suez Canal, Britain formally occupied Egypt. In a 19th century version of the Greek debt crisis, Britain handed over Egypt’s public treasury to European banks who swallowed up two-thirds of the state’s revenue.

With high taxation generally leading to no representation, not to mention a great deal of repression and persecution, it is unsurprising that the people of the region have such a cavalier attitude toward paying taxes. And native governments, with their high level of corruption, mismanagement and incompetence, have not helped raise the credibility of paying taxes in the public eye.

But there are some initial signs of change. Governments across the region are looking to increase their revenues by broadening the tax base. These efforts have mostly focused on indirect taxation, such as sales and consumption taxes, which are easier to levy.

However, indirect taxation is reaching its limits. Egypt, for one, has raised its low income tax level to try to shore up its deficit, especially as aid from its Gulf patrons gradually dries up. Even in the Gulf, a robust debate has begun about the need to raise tax levels to compensate for fluctuating and falling oil revenues.

While governments are bound to try to impose taxation without real representation, in modern economies, this would require the kind of coercive ability no state in the region possesses. Although taxation alone will not bring about fair representation, manipulated cleverly by the citizenry, it will force the region’s governments to become more accountable and, eventually, more democratic.

The writer is an Egyptian-Belgian journalist, blogger and writer living in Jerusalem. He is the author of “Intimate Enemies: Living with Israelis and Palestinians in the Holy Land.” Follow him on Twitter: @DiabolicalIdea.

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