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Why taxes are low in the Middle East

By Brian Whitaker

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

"Market
Tehran's grand bazaar recently went on strike in protest at plans to increase taxes there. Photograph: Morteza Nikoubazl/Reuters

The Islamic Republic of Iran conjures up many images, but "tax haven" may not be one that immediately springs to mind.

The other day I was chatting with an Iranian friend who has just moved to Britain and had his first encounter with the British tax system. He was wondering: "Do I really have to pay?"

Back in Tehran, they have a kind of council tax, though my friend's family, in common with many others, hasn't paid it for years and the authorities haven't seriously tried to collect it, either.

Last month, Tehran's grand bazaar went on strike in protest at government plans to increase taxes there. But it's not just the money: the merchants don't fully accept the idea of letting inspectors pry into their accounts.

In Yemen, too – where there is a permanent economic crisis – the government is battling to enforce a sales tax in the face of fierce resistance. Currently, Yemeni businesses cough up only about 20% of what they are supposed to pay.

Low taxes, and the erratic collection of them, are common features of life in most of the Middle East. Among the Arab oil producers, for example, taxation accounted for only 5% of gross domestic product in 2002, rising to 17% in the non-oil countries – which is still very low compared with Germany (39%), Italy (41%) and Britain (37%).

The main reason, of course, is th



    
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