Taxing the rich but not the capitalists: Direct taxation in Sisi’s Egypt (2014-2021)

ABSTRACT

How come authoritarian regimes target certain social constituencies with direct taxation more successfully than others? This article addresses the recent surge in Egypt’s property tax revenues since 2014, which has almost exclusively fallen on the shoulders of rich property-owners in urban areas. Conversely, similar efforts to collect capital gains taxes from investors in the stock market failed miserably during the same interval. What might explain such disparity between property-and capital-holders under Sisi’s rule? Invoking Albert Hirschman’s paradigm, I argue that rich property holders in urban areas could be pressed successfully for direct taxation because they lacked viable exit options given the immobile nature of their assets, the national scope of property taxes, underdeveloped financial system and the inflation-context. Even though they had a voice, it could be ignored with minimal political and economic repercussions for the ruling regime, given the lack of intermediate channels. Conversely, large and concentrated capital holders could utilize the more mobile nature of their assets to credibly threat exit, amid the regime’s desperate need for re-launching the economy. Moreover, they could voice their protest and coordinate collective economic action on sectoral or cross-sectoral basis without much need for intermediaries. Specific to Egypt, the contrast of both simultaneous processes of direct taxation might inform us of the class dynamics of the Sisi regime, which could adopt relatively progressive direct taxation in some areas like real-estate property despite the overwhelming regressive fiscal reforms while showing a terminally limited ability to effectively collect direct taxes on big capital holders.

KEYWORDS:

• Taxation
• Egypt
• voice
• exit
• authoritarianism

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. Real-estate taxes include three forms of property taxation: the real-estate wealth tax, the tax on buildings and a property transfer tax that is primarily collected from the exchange of real-estate units. I combine all three under the label of property taxes. It should be noted that real-estate wealth taxes constitute the bulk of property tax receipts.

2. According to the Chairman of the Egyptian Exchange, 83 per cent of the capital market capital traded was held by institutions. As for individual investors, the top 100 hold 8 per cent, indicating a considerable level of concentration among individuals as well (Hussein, 2022).

3. Democratization in the South, namely in Latin America, hardly led to any noticeable increase in the ability of states to tax their societies, especially the rich, and appears awfully similar to those in more authoritarian regimes in other regions of the Global South (See M. L. Ross, 2015). Countries such as Mexico and Argentina, as well as Turkey and Indonesia, retained even lower ratios of taxes to GDP than authoritarian Tunisia (2000–2012) and Morocco. China was dealt with as a case of taxation without representation (Bernstein & Lü, 2003; Liu & Ma, 2016).

4. The semblance of a state party did not appear before the 2020 elections with the Mustaqbal Watan party dominating parliament. It is, however, too early to judge its intermediary role.