Researcher Shatha Khalil*
Since February 2021, the Iraqi government has been planning to increase tax revenues and include new segments in them, through a set of measures to facilitate their payment, and to reduce the routine rampant in its work for decades, which was a major reason for the spread of administrative corruption in this important economic file in the country.
But the methods of collecting them are still primitive, as “automation” is (an electronic system for collection) that can help increase the collection of taxes and reduce levels of corruption, and it is likely that the figures that the Tax Authority spoke about will be reached during 2021, if there is an effective tax system in the country.
Some economic researchers assert that Iraq owns five million shops, and their owners avoid registering them and paying taxes, because they will face administrative problems in any review of state departments, as well as corruption in the tax authority, noting that after the implementation of “automation” it can rise tax imports to Weakness.
If there is a successful management of the tax file, it could lead to Iraq obtaining revenues estimated at $8.2 billion annually, because taxes are currently in a chaotic phase.
The country can obtain nearly three billion dollars as a result of trade exchange with some neighboring countries, but because of corruption, very small sums are obtained, most of which go to the pockets of the corrupt.
The reform plan announced by the Tax Authority is the first of its kind to develop the work of this vital sector and reduce the rates of administrative corruption in it to acceptable rates in a country like Iraq that has been witnessing political, security and economic turmoil for decades.
The head of the Iraqi Tax Authority, Shaker Al-Zubaidi, revealed a plan to increase tax revenues in Iraq to 6 trillion dinars (4.1 billion dollars) during 2021, which included simplifying procedures and self-assessment in paying taxes and reducing fraud.
A source stated that the tax revenues that were achieved during the year 2020 amounted to about five trillion and 22 billion dinars (3.4 billion dollars) in 2017, and then decreased to four trillion dinars (2.7 billion dollars) in 2018, and revenues fell again to three trillion dinars. ($2 billion) in 2019, before rising in 2020 to three trillion and 800 billion dinars ($2.6 billion).
Among the types of taxes: consumption taxes, and the nature of this tax on sales Tax rate Value added tax is not applied in Iraq Reduced tax rate.
The amendments made by the Finance Committee in the Iraqi Parliament to add new taxes are imposing a tax of 25,000 dinars ($17) per person on foreign travel at all Iraqi airports, imposing a tax on cigarettes and tobacco at 100 percent, and on alcoholic and spirit drinks at 200 percent. It also included imposing a 25 percent tax on imported fuel sold for cars.
20% on mobile and internet recharge cards, 15% on tickets and cars. Restaurants, luxury and first-class hotels are subject to a 10% sales tax.
Corporate tax, the company tax is 15% and the tax rate for foreign companies Foreign companies are taxed at the same rate as the national tax. Income generated in Iraq from contracts with foreign oil companies and their subsidiaries or offices and subcontractors operating in Iraq in the oil and gas production sector and related industries is subject to withholding tax (usually between 3%, 3.3% and 7%) Capital gains taxes are included Gains from the sale of assets are in ordinary income and are taxed at the ordinary corporate tax rate. Gains from the sale of stocks and bonds that are not in the course of a commercial activity may be exempt from tax.
Principal Allowable Deductions and Tax Credits Under the Tax Code, the taxpayer’s legally documented expenditures incurred in producing income in Iraq are deducted from profits from other sources provided that they are duly documented.
Depreciation of fixed assets is tax-free (with maximum rates determined by an Iraqi committee). The Iraqi tax legislation does not include a provision regarding deduction for goodwill or interest expense. Iraqi legislation does not cover start-up expenses; However, it is usually deductible according to GAAP.
Bad debts are generally deductible, as are charitable contributions to recognized foundations.
Fines and taxes are not deductible.
Losses can be carried forward up to five years, but are limited to half of your taxable income for each of the five years. Moreover, carry-forward losses can only be offset against the same source of income from which the original loss arose. Losses are not allowed to carry forward. Other Corporate Taxes The basic tax is assessed at 10.8% (12%, discounted at 10% to allow a theoretical deduction for assumed maintenance and depreciation) on annual revenue for all properties and is collected from the property’s property owner or long-term tenant (five years).
Stamp fees for contracts range from 0.1% to 3% of the contract value.
The employer is required to deduct tax from the salaries and wages paid to its employees and transfer it to the tax authorities.
With regard to social security contributions, employers are divided into a number of categories with different contribution rates. Employers classified as major contribute 25% of an employee’s salary to Social Security, while other categories contribute a lower rate of 12%. Other Local Resources Consult the Doing Business website for a summary of taxes and mandatory contributions.
Taxes in Kurdistan:
Kurdistan Region Taxes: In the Kurdistan Region a tax of 5% is imposed on the basic salary and any bonuses above 30% of the basic salary.
Deductions: Individuals who receive employment income from the private sector are entitled to annual deductible benefits in the following amounts, based on age and/or marital status.
Bachelor’s personal allowance: 2,500,000 Iraqi dinars
Personal allowance for the married person: 4,500,000 Iraqi dinars
Age allowance (for those over 63 years old): 300,000 Iraqi dinars
Child allowance (if the child is under 18 years old, engaged in full-time academic studies and has no income): 200,000 IQD
Other discounts include:
All labor income received from the government, public institutions and local authorities; social security contributions; and “risk allowances” (not to exceed 30% of basic salary).
The impact of taxes on the simple citizen, as imposed on citizens within the budget law, will harm the citizen, increase unemployment and poverty and lead to a decline in economic activity in the country.
And the need to find an effective tax system: “Taxes according to the budget law were imposed on some sectors, including cosmetics and fuel, and taxes on employees, given that the House of Representatives approved the use of the 1982 tax law,” indicating that the employee and fuel tax may lead to increased harm to the citizen, given that transportation enters In all life facilities and leads to an increase in prices, and here is an urgent need to develop the tax system by easing procedures and making the Iraqi citizen go to the tax without obstacles and extortion and not evade them.
Economic Studies Unit
Rawabet Center for Research and Strategic Studies
Sources:
https://contractortaxation.com/iraq/tax-in-iraq/https://www.activpayroll.com/global-insights/iraqhttps://www.researchgate.net/profile/Khawla-Hamdan/publication/328095731_alkhskhst_walnzam_aldryby_fy_alraq/links/5bb72a26299bf1049b6fd90a/alkhskhst-walnzam-aldryby-fy-alraq.pdf