Why taxes are low in the Middle East

High taxes help to build an effective state. That many Middle Eastern countries don't have them tells us much

Brian Whitaker
guardian.co.uk, Monday 23 August 2010

".....The main reason, of course, is that many of them are rentier economies where the government has sources of income other than taxes. Oil is the classic example but there are others: Egypt benefits in a similar way from the Suez canal and several of the poorer Arab countries receive substantial rent in the form of foreign aid. Overall, slightly less than 20% of Arab governments' revenue comes from taxes.

Taxation is an often-overlooked factor in the internal politics of the Middle East: it helps to explain why undemocratic regimes stay in power for so long. Governments that have substantial non-tax income can buy themselves out of trouble by showering largesse on the population, often keeping prices low through subsidies (as happens in Iran).

Taxes are never popular, and the higher the taxes are the more likely it is that people will demand a say in how the money is spent....

But taxes are not just about raising money. The kind of tax system a country has tells us a lot about the relationship between the people and the state.

As the World Bank pointed out last year:
• Raising taxes efficiently requires political effort to secure taxpayer consent.
• Raising taxes effectively requires the development of a competent bureaucracy.
• Raising taxes equitably requires political concern for the fair and equal treatment of citizens by the state.
"Taxation," the report continued, "is at the centre of good governance and state-building. The perceived fairness of the tax system is crucial to building an effective state based on citizens' consent. Willingness to pay taxes is a good indicator of the legitimacy of the state.""