A Diverse Tax Base Can Protect Middle East From Economic Shocks

The current conflict in the Middle East is having an economic ripple effect throughout the region affecting multinationals. This series examines the impact the conflict is having on corporate tax practice and tax administration there.

The current Gulf conflict has disrupted economies and businesses throughout the Arab world and beyond. For tax authorities, it has meant sharply reduced short-term revenues, at least temporarily. For multinationals in the region, it has meant lower revenues, uncertain prospects for future business, supply chain challenges, and difficult choices as to whether to keep personnel in the region.

Yet it’s not too early to begin planning tax policies for the postwar period, to ensure that the region remains a strong place for investment and to help economies rebound quickly.

In the years preceding the war, several Gulf countries diversified their tax base to avoid overreliance on oil and gas revenue. The results are most prominent in the growth of Saudi Arabia, the United Arab Emirates, and Qatar as global financial centers and vital transportation and logistics hubs. There also has been a push for artificial intelligence and data centers to drive growth and to diversify energy supplies through solar energy.

While petrochemicals, helium, and industrial gases have suffered in the war, diversification provides a strong base for rebuilding when durable peace comes. Other economies face the dilemma of overreliance on industries. For instance, tourism in Egypt, which saw $16.7 billion in revenues and 20% increase in tourist arrivals in 2025 and a 43% increase in the first quarter despite the war, remains strong. But even with strong growth in one industry, whether hydrocarbons or tourism, governments are vulnerable if shocks take away a significant portion of the tax base.

Read more:
Gulf Conflict Creates Tax and Liquidity Risks for Multinationals
Middle East Worker Mobility Is a Corporate Resilience Strategy
Gulf Instability Tests Multinationals’ Transfer Pricing Policies
New Taxes in Gulf Countries Are a Shield Against War’s Turmoil

Lebanon illustrates a deeper truth about taxation in fragile environments: Resilience isn’t only about revenue; it’s about institutions. Repeated shocks have eroded both the tax base and tax compliance, as well as administrative capacity, and public trust.

Recovery, therefore, can’t rely solely on new tax measures or higher rates. It requires rebuilding the fundamentals of tax administration—simplification, digitalization, and credibility so that Lebanon, which recorded positive growth in 2025 following years of deep contraction, can continue the path of recovery.

Gulf Cooperation Council economies entered this disruption with stronger fiscal architecture than they had in 2020 during the economic shock of the Covid-19 pandemic. New value-added taxes, excise taxation, and digital tax administration have broadened the revenue base, providing policymakers with room to maneuver. Countries with diversified revenue streams and credible fiscal frameworks are better positioned to absorb shocks without resorting to destabilizing policy shifts.

The distinction between targeted and broad-based responses is more than technical—it’s strategic. Sweeping tax cuts and generalized subsidies can be fiscally costly and politically difficult to reverse. In contrast, targeted and temporary measures preserve credibility while addressing immediate liquidity needs.

But what does targeting mean in practice? Start by examining what made the Gulf economies strong and build back from there:

First, the major Gulf economies rely heavily on an international workforce in industries ranging from energy to hospitality. Companies aren’t earning new funds to pay them now, but this labor will be essential to restoring the economy quickly.

One option would be for governments to offer businesses some form of payroll protection to keep workers in the region, ready to rebuild—call it “wartime retention relief credits.” This could be a credit on, or deferment of, future corporate income tax. The credits would stabilize labor markets for quick reconstruction when events move quickly—more quickly than these workers could return without the credits.

For similar reasons, governments may want to consider redefining how many workdays expatriates must have to keep residency rights in industries such as finance and healthcare. The goal is to bring people, and thus the economy, back to work quickly.

Second, tax authorities can consider administrative measures to help businesses conserve cash flow in this difficult time. They could extend deadlines for VAT and other quarterly payments. This would respond to investors’ needs and better align tax payments with actual corporate activity.

While governments need revenues quickly, these measures are deferments—and a positive response to investors who have invested billions of dollars in these countries’ diversification and growth under the assumption of economic and policy stability.

Beyond deferrals, tax administrations have a wider set of tools to support resilience without compromising revenues. These include accelerated VAT refunds for compliant firms, structured installment plans, temporary penalty relief under force majeure conditions, and fast-track rulings to provide certainty for investors.

The expansion of digital tax systems—already well advanced in several Gulf economies—ensures continuity of compliance even in disrupted environments, reducing friction between taxpayers and authorities when it matters most.

These types of responses aren’t handouts; they’re operational necessities. Recalling how long it took for many businesses to reopen fully and recover after the pandemic, the Gulf can’t afford these delays.

The purpose of the temporary relief is to accelerate a return to normal business when conditions stabilize, so Gulf countries can fully enjoy the benefits of a broadened tax base prior to the current conflict. Revenue from other sectors can bridge the gap until the oil and gas sector can resume prewar production levels.

For economies that haven’t achieved that level of economic diversification or that depend on sectors such as tourism to carry overall revenues, the lessons for recovery are clear:

• Avoid broad stimulus to avoid weakening the state’s fiscal position at a time when inflation remains a concern.
• Seek to diversify the economy and thus the tax base as much as possible, focusing for instance more intensely on agriculture, housing, and light industry.

Ultimately, the effectiveness of tax policy in times of disruption depends on trust. Investors and businesses respond to incentives as well as predictability. Policymakers must balance safeguarding fiscal sustainability with supporting those most affected by shocks. To increase investor confidence, transparent, rules-based, and consistent tax systems are a prerequisite for resilience, not a luxury. Avoiding broad stimulus can support a quicker and more sustainable recovery.

Finance and tax officials should begin planning now for more diverse, agile, and resilient economies, anchored in credible institutions, targeted policies, and tax systems capable of withstanding future shocks.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Manal Abdel-Samad Najd, the former Minister of Information of Lebanon, has worked for and advised governments and investors on taxation across the Arab region for more than 25 years.

Daniel A. Witt is president of the International Tax and Investment Center in Washington, DC, and has worked on tax policy and administration reforms in transition and developing countries since 1993.

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