Taxation, Bahrain’s Alternative Path to Reform

Commentary by Hasan Alhasan – 1 November 2011

Bahrain's Crown Prince. Source: bloomberg.com

The decades long adage of “no representation without taxation” that seemed to underpin the way governments have interacted with their citizens in the Gulf region soon may no longer be valid in the tiny island kingdom of Bahrain. In August, the government announced it was studying the highly unpopular option of introducing a corporate tax on companies, a valued-added tax on products and a cut in public subsidizations of consumer goods to cover the growing budget deficit. The country’s Crown Prince Shaikh Salman Al-Khalifa – a modernizing figure within the country’s ruling family – is intent on decreasing Bahrain’s economic dependence on oil and thus on Saudi Arabia. It is estimated that in 2010 oil revenues coming in from the shared Saudi oil field of Abu Safah as subsidy represented up to 67% of Bahrain’s budget revenue.

Bahrain has been in the spotlight as opposition forces staged massive demonstrations in the kingdom’s capital Manama between the months of February and March following events in Tunisia and Egypt. However, the entry of Saudi troops on March 14th was followed by a large-scale crackdown by local security forces, and efforts towards dialogue and political reconciliation ended in vain. Today, Bahraini society remains very much divided between the mainly Shiite opposition and Sunni loyalists.

The eventual introduction of taxation, increasingly seen as inevitable, will undoubtedly pave the way for greater political accountability by the Bahraini government. Currently, the state imposes a minimal set of social insurance fees on corporate entities and has no personal income taxation scheme. Citizens who have long enjoyed access to public housing, free education and virtually free healthcare among a list of other benefits will start to feel the impact of the country’s generous welfare system on their own personal incomes even as an indirect tax scheme is introduced. As taxes become more of a reality, citizens of various political convictions could very well demand having a bigger say in how their money is spent. In the long run, the hope is for this to eventually translate to a considerable political consensus on demands for greater legislative and oversight powers to the elected chamber of parliament, further freedom of press and an increased participation of civil society in policy-making in spite of the Sunni-Shiite gap.

However, in the wake of recent unrest, conservative forces within government have successfully bargained for political support from the merchant class-dominated Bahrain Chamber of Commerce and Industry (BCCI) in exchange for suspending economic and labor market reforms previously initiated by the Crown Prince. Very recently, the BCCI expressed its support for the King’s controversial amendments to the country’s 2002 trade unions law, hitherto seen as the most liberal in the Gulf region. The amendments aim to weaken the opposition’s iron fist control over trade unions and federations as well as to punish trade union representatives who were actively involved in organizing strikes directed against the government. The Crown Prince’s continued marginalization and the backpedaling on much of his reforms by conservative groups within government and merchant class representatives certainly render the shift towards a more autonomous, oil-independent economic setting more challenging at least for the time being.

Nonetheless, as international and domestic pressures continue to be exerted on the kingdom’s rulers, the country will have to introduce reforms probably quid pro quo a taxation scheme under the leadership of the Crown Prince, arguably one of the few remaining bridges between the opposition and the ruling elite. In 2002, the country’s ruling elite under the leadership of the King proved itself willing to introduce reform by drafting a constitution, reinstating parliament, legalizing trade unions and allowing for a greater freedom of press. Given a favorable balance of power within the ruling family, there is little reason to believe that the Bahraini leadership would be fundamentally opposed to reform today. Political reform obtained as a result of greater citizen participation in the economy through a taxation scheme may very well be Bahrain’s alternative, more gradual and probably less polarizing path to further democracy.

Hasan Tariq Alhasan is currently pursuing a Master in International Political Economy at the London School of Economics, UK. He has obtained an undergraduate degree in Political Science (Middle East concentration) from the Institut d’Etudes Politiques (Sciences Po) in Paris, France. He has previously written opinion pieces on Bahrain for La Tribune and The National. Research interests include GCC-Iran relations, GCC labor markets and the transformation of public bureaucracy in the GCC.

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3 Comments

Filed under Arab Spring, Bahrain, English, Gulf states

3 responses to “Taxation, Bahrain’s Alternative Path to Reform

  1. Alexandre T.

    Even such a implement would be a recovery sign, I would not be that optimistic.

    On a strictly national scheme, the Labour Trade Unions decree, as you said, targets the General Federation of Bahrain Trade Unions, whatever the reasons (among which confessionnalism, which isn’t true). We can also, behind a will of liberalization, gloss such a measure as an attempt to control further trade unions. And, given the current mental disposal throughout the Bahraini society, we could expect the implement of new trade unions on sectarian basis. All the more that such unions will be approved by the minister of labour. Of course, carving up GFBTU’s monopoly is positive since pluralism is a “prerequisite” to voicing scattered claims. But a way is opened to using this argument beneath which implicitely lies the will to handle working factions. This affirmation shall be understood as a mere supposition, an option.

    I would be far more sceptical on the “favorable balance of power within the ruling family”. Behind the mutual congratulations that are strewing the newspapers, a intern political divide is at stake. In the light of the reinstatement matter, for example. The King delivered a speech urging administration to reinstate sacked workers and nothing followed. Even more, tenures granted by the concerned ministries (Health, Education, Labour) to “heroic” volunteer workers of the unrest might give an additional reason to the non reinstatement of a large number of sacked people.Against the King’s speech, several private firms still refuse to rehire Shi’as, or do so by squeezing them to sign no paid leave and no sickness cover. There are, far more, cases directly linked to the ruling family – torture allegations, for example – that uncover internal divisions.

    The regime is besides announcing contradictory measures. The crown prince was marginalized along with his father, and this is still valid. We could extend this analysis to foreign matters (i.e. CCG in Bahrain, Iran, and Shi’as on the East coast of Saudi, Banu Khaled in Bahrain) but it would be going farther than the subject.

    All this aims to say that behind these public claims, economic measures will barely – or in the real long term – handle, or heal, political matters. Even if we can expect the benefits of such a measure, it is hard to believe that a real will of uniting the people will blossom. Let us wait for the first measures taken from the National Dialogue recommandations.

  2. Dear Alexandre,
    Thank you for taking the time to read and respond to the article. With regards to the balance of power within the ruling family, I would make the argument that the King is not really marginalized and that the Crown Prince will not remain as such for long. The King took in effect a number of measures that can be thought as being quite unpopular with more conservative groups within the ruling elite. The appointment of the investigative commission under Bassiouni as well as subsequent measures including the release of the medical workers (that sparked an uproar in the Sunni street), the transfer of all cases hitherto tried before the hybrid (military-civilian) court to civilian courts, and finally the suspension of high-ranking police officers (of which at least one is a member of the royal family; also sparked a Sunni uproar and a show of solidarity at the Clock Roundabout in Riffa) under investigation for torture allegations are an illustration of this. On the other hand, I do not think it very surprising for there to be an amount of low-level resistance to the King’s instructions to reinstate workers to their jobs. However, I think that such measures, including these instructions for the reinstatement of suspended workers that you have mentioned, are an illustration that the King is willing to and capable of enacting measures unpopular with the conservatives both within the ruling elite and in society. I think we can safely describe these groups as being ‘more royalist than the King’.

    As for the Crown Prince, forget not that he retains control over the financial apparatus of the state, including the Ministry of Finance and Mumtalakat. A few weeks ago, he made a very high-profile appearance at the chamber of commerce with almost his entire speech broadcast on state tv in which he gave the merchant class, the opposition and others some bitter pills to swallow. Most importantly though, with regards to the CP, is that he will inevitably have a central role to play in any serious political negotiations with the opposition. Interestingly, the (Sunni) The Gathering of National Unity led by Al-Mahmood has been quite hysterical for the past few days over rumors that some secret negotiations or deal might be taking place behind the scenes between figures within the ruling elite and the opposition. I would therefore not expect the Crown Prince to remain on the side for long.

    Of course, much of this is obviously speculative, but without being over optimistic my reasoning is that whereas attempting a revolution or staging an uprising might be vertically divisive, polarizing and radicalizing in Bahrain, economic reform may – willingly or unwillingly – become a rallying or uniting cause for some societal factions, or at least one where the lines are not drawn on sectarian or confessional basis.

    Sorry for the long reply. I hope I’ve managed to address some of the issues you brought up. Don’t hesitate to write back!

  3. Alexandre T.

    Thanks you for replying that fast. I would like to add a few things, without flooding.

    The idea stating that political power is not granted to one person’s willingness might extend to Bahrain. All the more this is an arab country, where the tribal tradition, with all that this implies, is deep-rooted. In regard of the labour market reform, for example, which had remained in a stalemate for several years, it is clear that the CP did not have the backing of the government. The last reforms suggested by the CP, even under “exceptionnal circumstances”,within the last months were also blocked, and still are (maybe will remain?), by the prime minister, who has a large support; and this even if the opposition, in a way, refused to play its role.

    The CP may have a role in a dialogue with the opposition associations, but he won’t be sole. I am not a specialist of Bahrain but it seems that the balance of tendencies in the family is really unstable; several other elements confirm it, such as individual affinities. So, yes, they are goodwilling; but addressing these issues in cabinet conferences seems unlikely to succeed.

    There are reasons to believe that the BICI’s report, which is to be released soon, will be out of substance (I draw your attention on the words Bassiouni uses when talking about the Bahraini movements : http://www.wbez.org/episode-segments/2011-10-04/depaul-international-law-expert-heads-report-crackdown-bahrain-92809). Closing the special court was more an effect of announce (as are the few releases of detainees, jailed for minor matters) following the international statements than a real progressive steps. The “retrial” of the medics is an appeal before a civilian court gifted with the same charges than before the military court. The public prosecution, which had announced the “retrial”, stated the expression in the english document, but used “استئناف” (appeal) in the arabic version. I do not see here a motivation to go forward but to temporize : which slightly confirms the internal division.

    But, I agree : were to be a dialogue, taxation might be a sensible matter.

    I hope there will be soon an occasion to follow up that exchange.

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