Taxation: Bahrain's alternative path to political reform

Bahrain's uprising was curtailed by a brutal crackdown. Could the rising sectarianism and tense Sunni-Shia divide be reversed through taxation?

Hasan Tariq Al Hasan
6 December 2011

The decades old adage of “no representation without taxation” that seemed to underpin the way governments have interacted with their citizens in the Gulf region may soon 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. 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 subsidies represented up to 67% of Bahrain’s budget revenue.

Bahrain was in the spotlight when opposition forces staged massive demonstrations in the kingdom’s capital Manama between the months of February and March this year. However, the entry of Saudi troops on March 14 was followed by a large-scale crackdown by local security forces, and efforts towards dialogue and political reconciliation have been in vain. The Saudi intervention took place only a day after the Crown Prince had publicly agreed to negotiate on the bulk of the opposition’s demands, and mainly served the purpose of shifting the balance of power within the ruling family in favour of its conservative camp. This undermined the Crown Prince’s efforts to reach a negotiated solution with the protesters. Urged by a heightened sense of insecurity, representatives of the Sunni community and Sunni MPs strongly encouraged the King to restore law and order and declare a state of martial law. The subsequent crackdown by security forces resulted in the arrest and trial of 21 opposition leaders, the arrest and layoff of hundreds of individuals and the destruction of a few dozen Shiite religious structures in a series of repressive measures that have brought the protest movement to a standstill. Today, Bahraini society remains very much divided between the mainly Shiite opposition and Sunni loyalists. Sunni representatives have argued that at first they were sympathetic to most of the opposition’s demands, but were then alienated when polarized, radical figures took centre stage and began calling for the downfall of the regime. Some have even raised concerns over the prospect of civil strife: clashes between Sunni and Shiite citizens, the emergence of vigilantes and calls for the creation of popular committees of protection have become an increasingly common phenomenon.

The eventual introduction of taxation, increasingly seen as inevitable, would certainly pave the way for greater political accountability from the Bahraini government. Currently, the state imposes a minimal set of social insurance fees on corporate entities but 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, compounded by the introduction of an indirect tax scheme. As taxes and cuts in public subsidies become a more present reality, citizens of various political convictions could very well demand a bigger say in how their money is spent.

The Crown Prince won the support of the opposition with his labour market reforms of 2006, which support Bahraini workers by levying fees from businesses employing foreign labour. The political opposition is similarly expected to support the proposed tax measures, since these reforms will most likely target the country’s merchant elite. In the past, the opposition and loyalist groups have collaborated effectively in parliament on issues such as the fight against public sector corruption, of which the merchant class is a primary beneficiary. Between 2007 and 2010, a parliamentary commission composed of both opposition and loyalist MPs investigated and documented numerous instances of the transfer of land ownership from state to private hands without due process or proper compensation. Given this history of common goals, the introduction of taxes could be the catalyst for a considerable political consensus between opposition and loyalist groups over demands for greater legislative and oversight powers to the elected chamber of parliament, and increased participation of civil society in policymaking. This could further the shift towards an elected government in spite of the problematic Sunni-Shiite gap.

However, in the wake of the recent unrest, conservative forces within government have successfully bargained for political support from the Bahrain Chamber of Commerce and Industry (BCCI), suspending economic and labour market reforms. 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 backpedalling on many of his reforms by conservative groups within the government and merchant class, certainly render the shift towards a more autonomous, oil-independent economic setting more challenging.

Nonetheless, considerable international pressure and calls for reform continue to be exerted on the country’s rulers. International human rights organizations such as Human Rights Watch and Amnesty International have criticized the use of military courts, the trial of doctors and the suspension of students among other punitive measures that the government has taken. In his speech at the UN, President Obama called upon the government and the Al-Wefaq opposition bloc to, “pursue a meaningful dialogue.” Both the United Kingdom and France have suspended all arms sales to the kingdom due to concerns over human rights abuses. The US has followed suit, linking its $53m arms deal with Bahrain to the improvement in the human right situation. Bahrain’s King has recently accepted and promised to implement the critical report and recommendations of the Bahrain Independent Commission of Inquiry, an investigative commission composed of international legal experts. Albeit a positive step, the international community is unlikely to consider it sufficient.

Despite the government’s crackdown on protests earlier this year, tax reform is expected to spur effective domestic pressure if indeed opposition and loyalist groups successfully coalesce on this matter.  The government generally relies on alliance building tactics to exclude and isolate groups it wishes to silence or repress. This was evident during the February and March uprising through the creation of The Gathering of National Unity – an alliance of Sunni MPs and community leaders – that promptly aligned itself with the government in order to counterbalance opposition forces. However, an opposition-loyalist alliance for tax reform, similar to that of the 2007 – 2010 fight against state corruption, would leave the government incapable of turning a blind eye to their political demands.

The kingdom will have to introduce political reforms probably quid pro quo a taxation scheme under the leadership of the Crown Prince, who is seen as one of the few remaining bridges between the opposition and the ruling elite. In 2002, the ruling elite proved willing to introduce significant reforms spearheaded by the King and the Crown Prince that have included the drafting of a constitution, the reinstatement of Parliament, the legalization of trade unions and greater freedom of press. Given a favourable balance of power within the ruling family, there is little reason to believe that the country's political elite would be fundamentally opposed to the idea of gradual 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 less polarizing path to further democracy.

An earlier version of this article was published here.

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