The Economist - UK (2022-04-09)

44 Middle East & Africa TheEconomistApril9th 2022

sonshad raided thecity’s central bank,

stealing$300minlocalandforeigncur­

rency.“HissonsareworsethanQaddafi’s,”

saysa Benghazibusinessmaninexile.

Journalists inthecity are monitored

andmuzzled.MrHaftar’scriticsareliable

todisappear.TheWallStreetJournalreport­

edin 2020 thathehoardsa stashofgold,

originally from Venezuela. Since he re­

openedBenghazi’sportin2018,ithasbe­

come anentrepot for captagon, anam­

phetaminemanufacturedinSyria.“Drugs

isBenghazi’smaingrowthbusiness,”says

a localacademic.Dealersaresaidtolaun­

dermoneyinfancyclothesshopsandres­

taurantsalongVeniceStreet.Jewellersca­

teringtogangstersarethriving.

Benghazi’speoplehadhopedthatAbdul

HamidDbeibeh,Libya’sbeleagueredprime

ministerbasedinTripoli,wouldsetabout

rebuildingBenghazi.LastMayheunveiled

a reconstructionpackagethatincludedthe

city.HewaslikenedbyoptimiststoRafiq

al­Hariri,theLebanesetycoonwhoused

hisowncompanytorebuildBeirutafterits

civilwar(beforehewasassassinated).Va­

rious unfinished projects, such as an

Olympic stadium that Mr Dbeibeh had

overseenunderQaddafi,mightpossiblybe

completed.ButMrHaftar’sgunmenbarred

MrDbeibehfromvisitingtheirstronghold,

andthefundsnevermaterialised.A gener­

alelectionscheduledforDecemberraised

hopes ofbreaking thedeadlockbut has

beenrepeatedlyputoff.MeanwhileBen­

ghazimouldersaway. n

TaxesintheArabworld

Collecting from the wrongpeople

L

ifeinegyptgetsmoreexpensivebythe

month.  Sitting  in  a  café  on  a  shady

street,  Mahmoud,  a  software  developer,

runs through the new taxes and fees. A val­

ue­added  tax  (vat)  was  introduced  at  13%

in 2016, then hiked to 14%. A few years ago

the government added a tax of ten Egyptian

pounds  ($0.55)  to  Mahmoud’s  monthly

phone bill. His cigarettes go up a pound or

two whenever the treasury needs a puff of

extra  cash.  Last  time  he  got  a  new  driving

licence, it cost 15 times more than before.

The  one  tax  that  has  not  soared  is  the

one  on  his  most  valuable  investment,  a

rental property he bought in 2016. He says

it has appreciated by $100,000 or so, a 25%

increase.  But  his  annual  property­tax  bill

has remained almost flat, at less than 1% of

the apartment’s value.

Arab countries have long lagged in col­

lecting  taxes.  In  2015  the  imf estimated

they raised the equivalent of 13% of non­oil

gdp, compared with 17% in other emerging

markets. Christine Lagarde, then the fund’s

director, told an audience in Abu Dhabi in

2016  that  Arab  states  should  “re­engineer

their tax systems” and boost revenue.

They  got  the  message—up  to  a  point.

Since  2016  five  Arab  countries  have

brought  in  vat.  Governments  have  im­

posed a spate of other levies on everything

from mobile phones to cinema tickets and

sought non­tax revenue by raising fees. 

If they are getting better at taxing their

citizens, though, they are often taxing the

wrong  ones,  imposing  a  big  burden  on

those who can least afford it. Consumption

(or indirect) taxes, such as vat, are highly

efficientbutgenerallyregressive.Theytax

whatyouspend;thepoorspendmoreof

theirincomethantherich.Intheoecd, a

clubofmostlyrichcountries,indirecttax­

esraiseaboutone­thirdoftaxrevenue.In

recentdecadestheproportionhasfallen.

Arabstatesaregoingtheoppositeway

(seechart).Egyptcollected46%oftaxrev­

enuefromgoodsandservicesinthefiscal

year2020­21,upfrom40%sixyearsbefore.

Indirecttaxesaremorethanhalfthetake

inTunisia,andthree­quartersofitinJor­

dan,wheretheyaddupto12­13%ofgdp.

Theappealissimple.Value­addedtaxes

raisea lotofcashwithoutdistortingecon­

omiesmuch(whichiswhyEuropeanwel­

fare states love them). And outside the

Gulf, most Arab countries have only a

patchypicture ofwhattheir citizensdo

andhowmuchtheyearn,whichmakesit

hardtolevydirecttaxes.Sometwo­thirds

ofEgyptiansworkoffthebooksininfor­

maljobs.LessthanhalfofTunisianshave

bankaccounts.ThelasttimeLebanoncon­

ducteda censuswasinthe1930s.Taxin­

spectorsareoftenoverworkedandreliant

onpenandpaperratherthandatabases.

Evasioniswidespread.Areportin 2018 by

BankAudi,aLebaneselender,estimated

thatitcosttheexchequer$5bna year(10%

ofgdpatthetime).

Authoritiesoftenblamethis,wrongly,

ontheinformalsector.MostEgyptiansla­

bouringintheblackmarketshouldpayno

incometaxora topmarginalrateofjust

2.5%.Evenifthetaxmanfoundthemall,

theextrarevenuewouldbemeagre.The

biggerproblemisa taxsystemskewedto­

wardstherich.Egypt’scorporate­taxrateof

22.5%isfivepointsbelowtheAfricanaver­

age,while itstopincome­taxbracket of

25%ranksasoneofthecontinent’slowest.

Italsohasnoinheritancetax.

Manyrichandmiddle­classArabspref­

erbuyingpropertytoshares,seeingitas

saferandmorelucrative.Yetgovernments

collectlittlepropertytax.Jordan’sfinance

ministryestimatesthatitbroughtinjust

115m dinars ($162m) from property last

year,just1%oftaxrevenue.

Somecountriesassesspropertytaxon

rentalratesratherthanthevalueofthe

building,whichleadstopunybills.Egypt

calculatestheseonlyonceeveryfiveyears,

withincreasescappedat30%perassess­

ment, even though property values in

somepartsofCairorisebyasmuchas25%

a year.RichEgyptianswhoplaythestock­

marketaresubjecttoa 10%capital­gains

tax.Butiftheyinvestthatmoneyinprop­

erty,thetaxratecandropbelow1%.

Oil­exportingGulfstatesdonotlevyin­

cometax,fearingitwouldupsetcitizens

andmaketheircountrieslessattractiveto

migrants. Corporate­tax rates are low,

rangingfromzeroto15%.Insteadthey,too,

leanonconsumptiontaxes.SaudiArabia

introduceda 5%vatin2018,thentripledit

in 2020 (amovetheimfadvisedagainst).It

willaccountfor79%oftaxrevenuethis

year.PoorerSaudiswillbehithardest.Rich

onestendtodotheirbig­ticketspending

outsidethekingdom.

Instead of making taxsystems more

progressive,Arabstatesareseekingever

moredesperatewaystoraiserevenue.Last

yeara parliamentarycommitteeinEgypt

approveda 3%taxonpurchasesinduty­

freestores(whichmayneeda newname).

Tunisianowchargespeople 100 millimes

(3cents)forpaperreceiptsinshops.Thisis

thefiscalequivalentoflookingunderthe

sofacushionsforsparechange.

Suchmeasureswillnotmakemuchofa

dentindeficits,butmayangercitizens.In

2019 theLebanesegovernmenttriedtoput

a 20­cents­a­daytaxonWhatsAppcalls.It

becamea trigger formass proteststhat

broughtthegovernmentdown.n

CAIRO

Arab states are raising tax revenue, but toomuchofitisfromthepoor

The taxman cometh, for some

Share of total taxation, %

2022* or latest available

Source:Governmentstatistics *Fiscal year

Egypt

Morocco

Tunisia

Jordan

SaudiArabia

100806040200

Other

Direct

Indirect taxes