Tax Analysts Blog
How ISIS Is Using Taxes to Build a Terrorist State
Posted on Aug 13, 2014
When does a rebel movement become a state?
Scholars have been wrestling with that question for decades, but it’s not just an academic exercise. Thanks to the rapid advance of the Islamic State in Iraq and Syria (ISIS), now rebranded as the Islamic State, state creation is an urgent matter of national security.
"The Islamic State of Iraq and Syria has probably undergone the quickest transformation to statehood in modern history," wrote Raed Omari, a Jordanian journalist, in an essay for the Saudi-owned Al Arabiya network. "In less than two months, it has gone from a militia to a self-proclaimed caliphate."
The distinction between a terrorist group and a state seems like it should be obvious, but it’s not. As the sociologist Charles Tilly pointed out, "banditry, piracy, gangland rivalry, policing, and war making all belong on the same continuum." Usually, bandits remain bandits and never manage to acquire the monopoly on force that defines a state.
But some groups do manage the transition, developing essential state institutions – like a tax system.
Earlier this year, ISIS managed to consolidate military control over large sections of Iraq and Syria. Its rise, however, has been defined by more than just military success. ISIS has also tried to establish administrative and civil control in its conquered territories.
"Unlike al-Qaeda's vague vision of a borderless world run by extremist jihadis, the Islamic State has a plan to build a viable state right now," wrote Thanassis Cambanis, a fellow at the Century Foundation. "In less than a year, it has secured a de facto country and acquired an arsenal of American weapons as war booty. It has formed alliances with non-jihadi Sunni leaders, including Baathist allies of deposed Iraqi dictator Saddam Hussein. And crucially, it has laid out a blueprint for a viable self-funding Islamic state, drawing a steady income from a commercial tax base and the crucial energy industry it has captured."
Indeed, income lies at the heart of state-building. More precisely, the method and machinery of money collection is critical to the rise of any functioning and durable government. States must do more than simply extort money from their subject populations.
But extortion is still part of the process. As Tilly observed, "If protection rackets represent organized crime at its smoothest, then war making and state making -- quintessential protection rackets with the advantage of legitimacy -- qualify as our largest examples of organized crime."
Of course, many things distinguish state-making -- and its subsidiary activity, tax-making -- from criminal activity. But these distinctions largely rest on matters of degree, not kind. "Since governments themselves commonly simulate, stimulate, or even fabricate threats of external war and since the repressive and extractive activities of governments often constitute the largest current threats to the livelihoods of their own citizens, many governments operate in essentially the same ways as racketeers," Tilly wrote.
Welcome to the modern tax state.
Much of the media coverage devoted to ISIS has focused on its brutality, both on the battlefield and as a nascent civil authority. But it's important not to let that brutality cloud understanding of the group's advance. "Many observers see ISIL [an alternative acronym for ISIS] at best as an organized crime syndicate, at worst a terrorist group so viciously anti-Shiite that even al-Qaeda has disowned it," wrote state-building scholar Ariel I. Ahram in a Washington Post opinion piece. "Both descriptions are correct, but incomplete, as they overlook ISIL's ambition to be a state (and the extent to which all states resemble organized crime rackets)."
For ISIS, the process of state-building has included some tax-building. Initially, the group depended on outright violence to raise cash. But as ISIS made the transition to IS, its revenue extraction became more sophisticated. "Despite a rocky beginning, ISIL today in many ways looks and acts like a state," noted Ahram. "In Mosul, according to reports, ISIL enforced taxes on a variety of commercial activities, including telecommunications companies that had relay towers in ISIL-controlled zones. Those who refused to pay risked abduction or murder. In Syria's Raqqa province ISIL imposed the jizya (poll tax), the same tax the prophet Muhammad placed on non-Muslim communities in return for protection."
The New York Times has noted the extent to which ISIS is regularizing its civil control, including the tax process. Raqqa's Credit Bank is now functioning as the city's tax authority, the paper reported, with employees collecting $20 every two months from business owners in exchange for electricity, water, and security. "Many said that they had received official receipts stamped with the ISIS logo and that the fees were less than they used to pay in bribes to Mr. Assad's government."
These forms of taxation lie near the banditry end of the spectrum, barely rising above the level of extortion. But they increasingly carry the trappings of regularized tax collection.
It's easy to overstate the lineal relationship between taxes and extortion. But it’s also vital to keep in mind how states evolve. Time and external recognition can provide the imprimatur of legitimacy, but not every state is old and established. If we hope to understand the process of state-building -- and recognize it when we see it happening -- then we can't lose sight of what state-building and tax-building look like in real time.