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I was wondering, the US has income taxes, but many Arab countries do not.

While many Arab states are considered frontier markets, others like the UAE and Qatar are considered emerging markets.

Yet, none of these countries have income taxes.

I sort of wonder that may be it's based on "envy". I mean, perhaps the purpose of income tax is not to balance the government's budget but to punish productive activity.

And only poor people have that kind of envy. Hence, income tax would show up on countries where the poor can vote, in other words, democracy.

Another explanation is oil. Saudi Arabia has vast oil reserves, but the UAE doesn't and they don't have an income tax either.

What explains this correlation between income tax and democracy?

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    I wager the correlation is less between income tax and democracy, and more between income tax and the government not owning huge profitable businesses. Let's see what happens when the oil dries up.
    – cHao
    Mar 5 '18 at 18:12
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    Look at the map in the Wikipedia article
    – SJuan76
    Mar 5 '18 at 18:48
  • I thought about it. UAE doesn't have oil. Also land tax is easier to compute
    – user4951
    Mar 5 '18 at 18:54
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    @J.Chang: The UAE has the 7th largest oil reserves in the world, and they are a tiny nation compared to the nations that have more oil. They have a lot of oil.
    – Giter
    Mar 5 '18 at 18:58
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    None of the Arab countries have income taxes? Well, except Morocco, and Tunisia, and Algeria, oh, and Egypt … Not to forget Lebanon and Jordan … And … But, basically none.
    – chirlu
    Mar 6 '18 at 12:21
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Partially True

The old rub about "no taxation without representation" has something to it, historically.

In many instances, including England and France (and even Afghanistan), a democratically selected parliament was something offered by a monarch in exchange for securing popular approval for taxation.

Monarchies and dictatorship are the "ancestral state" of all democracies, and one strong incentive for them to abandon that power is that they can no longer support a government with rents and royalties from property, because the real driver of the economic system shifts to the entrepreneurship and labor of the masses.

Further, many of the monarchies that remain absolute and continue to have little or no democratic checks (e.g. Saudi Arabia and Kuwait) also have little or no domestic income taxation and instead raise most money through royalty/government owned property. Even Puerto Rico, a commonwealth within the United States that has no democratic input into the federal government (except non-voting representation) pays little or no federal tax by special arrangement.

Other Reasons

Another reason that less democratic countries are less likely to have an income tax is a bit more complex.

One of the reasons that less developed countries, almost of which were begun with Western style democratic institutions, don't hold onto those institutions, is that they lack a sufficient corps of people to serve as skilled civil servants and potential politicians and top political appointees and judges to maintain a bureaucracy that can effectively govern a nation in the manner contemplated for a Western style democracy.

For example, this was an important reason that democratic institution collapsed in Sudan after it gained independence.

And, the corps of skilled people necessary to run a Western style democracy is also necessary to run a modern economy in which most economic transactions are conducted in the form of money transactions mediated through banks, and in which most people make their livelihood through employment in medium to large sized firms.

Countries without these kinds of economies, such as subsistence farming economies and economies that rely heavily on mining natural resources, tend to prevail in the absence of a population with these kinds of skills.

Also notably, countries without this kind of modern economy also tend to have more resources suitable for a national government to nationalize or own as royal property, and collect income from directly in lieu of taxation.

In the absence of a modern economy in which most economic transactions are conducted in the form of money transactions mediated through banks, and in which most people make their livelihood through employment in medium to large sized firms, it is extremely difficult to administer an efficient income tax with only modest tax evasion. Imposing an income tax on self-employed people requires lots of cooperation from the people being taxed and an ability to audit them through third-party records such as bank records.

Other kinds of taxes, such as property taxes, excise taxes on economically important industries, poll taxes, in kind labor levies, customs duties, and value added taxes are much easier to collect in the absence of massive cooperation from the people being taxed.

Therefore, since democracies and income taxes are favored in certain kinds of overlapping conditions, income taxes are more common in democracies than in non-democratic states where those conditions are frequently absent.

There are certainly exceptions. The District of Columbia has a modern economy but diminished democratic representation. So did Hong Kong. And, it is quite remarkable that India manages to maintain a fairly modern Western style democracy in an economy where 82% of employed people are self-employed. But, that doesn't take away from the general trend.

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  • self employed people are much harder to be taxed with income tax. Unlike employed people whose "income" is simply it's salary, self employed people can easily shift profit to other countries.
    – user4951
    Mar 8 '18 at 8:35
  • @J.Chang Self-employed people are harder to tax with income tax, but shifting profit to other countries is not the main way that this happens. Failing to report revenue received and claiming deductions not properly classified as deductions are the predominant means by which self-employed people pay less than their true income tax obligation.
    – ohwilleke
    Mar 8 '18 at 15:32
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There seems to be two parts to this question: 'is the purpose of income tax to punish productivity?', and 'do only(or mainly) democracies have income tax?'. Your use of the United Arab Emirates as an example is great, because it is a good example on how the answer to both of those questions is likely 'No', at least for corporate income tax.

The chart here goes into details on the UAE's corporate tax system, which are taxes levied on a corporation's income. Essentially, there is no income tax for individuals or non-oil/gas/banking companies. For oil/gas/banking companies, their income is taxed on a sliding scale from 0% for less than 1,000,000AED(about $250,000), to 55% for income larger than 5,000,000AED(about $1.3 million). So, not only does the UAE have some form of income tax, they are only taxing their most important businesses. I really doubt the goal of the UAE's corporate taxes are to punish their oil industry.

Looking at this list, you can see that there are many countries with taxation similar to the UAE. Brunei, Qatar, and Monaco have similar systems of 'some corporate, no individual' income tax. Brunei and Qatar are non-democratic like the UAE, however Monaco has an elected parliament that enacts certain legislature, so it is somewhat democratic.

Looking further at the above mentioned list, you can see that most countries, not just democratic, have either corporate or individual income tax, so you can't really say there is a correlation between democracy and income tax. Most of the countries that have no income tax seem to be tiny, such as Monaco or the Cayman Islands, and thus don't need much tax revenue to provide government services, or are countries that earn enough revenue from taxing a few very profitable industries, such as oil in the UAE, that they don't need to tax individuals in order to provide government services. Neither of those factors rely on being democratic or non-democratic.

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  • No income for income less than $250k per year is effectively no income tax for most people. This will actually support my guess.
    – user4951
    Mar 8 '18 at 8:33
  • @J.Chang: No income tax for less than $250k would effectively be no income tax for most people, but that is not in any way what the tax is targeting. 55% income tax for more than $1.3 million of an oil company's income is effectively a flat 55% tax on every oil company's income. This is how the UAE's leaders can afford so many palaces.
    – Giter
    Mar 9 '18 at 14:53
  • That seems to make sense. They are selling their oils. And unless you're in oil, you don't pay taxes. Hence, effectively no income tax for most people. That seems to be my point
    – user4951
    Mar 9 '18 at 16:13
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Is income tax only [levied] in democratic [countries]?

Saudi Arabia had income tax prior to 1975, but I don't know whether it applied to all workers or just foreign nationals.


After Saudi newspapers reported the decree on Saturday, thousands of foreign doctors, engineers, nurses, technicians, teachers, bankers and clerical employees told their employers they wanted to leave before Jan. 21, Saudi businessmen said. About one million foreign workers live in Saudi Arabia, and 35,000 to 40,000 of them are Americans.

The episode also shows the difficulty that even the world's No. 1 oil-producing country can experience in trying to balance domestic expectations of uninterrupted economic growth and social improvements against the effect of lower oil prices and declining revenues. Saudi Arabia imposed a similar income tax in the early 1970's but ended it in 1975.

Saudis cancel tax after complaints, 1988


There has been talk of reintroducing income tax at various times in Saudi Arabia and other Arab countries

“Deepening the taxation base will be an important step in increasing non-oil revenue, which will likely start with VAT first, but the discussion of income tax is notable,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Saudi Arabia Looks at imposing income tax on expats, 2016


perhaps the purpose of income tax is not to fill government [coffers] but to punish productive activity.

No, there's no evidence I can see that Arab governments, and others, wish to punish productive activity.

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Income tax in the UK originated to fund a war (the Napoleonic war, early 1800s, I think), in which Napoleon was threatening to conquer all of Europe - it wasn't invented to fund a king or conquest.

That said, there is no required link between any specific tax and any specific form of government. A dictator who thought income tax was a good idea would impose it, one who thought it wasn't would not.

More importantly, governments change. Suppose somehow that the UK, USA, France, Germany came to be a dictatorship somehow. Its very likely they would keep much of the existing "administrative law" for quite a while. I would expect them to increase or change taxes, but not to abolish income tax. The changes to accommodate it would be huge and they'd have bigger things to think about.

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