New taxes in Iraq's budget. How does it reflect on the lives of citizens?

It seems that the suffering of the Iraqi people will not stop economically at the gate of the devaluation of the local currency against the US dollar with the imposition of new taxes on public goods and services by the Iraqi government in the budget for 2023, the largest in the history of the country, and this actually means deepening the suffering of citizens even more, according to observers.

The budget came with a total proposed expenditure of 197.8 trillion dinars ($152.2 billion), the price of a barrel of oil is about $70 per barrel, and a fiscal deficit of 63 trillion dinars ($48.5 billion), according to Prime Minister Mohamed al-Sudani, who indicated that this budget will be repeated in the next two years as well.

Taxing

The tripartite budget includes in its details the imposition of new taxes by:

• 5% on sales proceeds per liter of gasoline.
• 10% on gas oil or kerosene.
• 15% on imported fuel.
• 1% on black oil sales.
• Airport tax at all Iraqi airports with a lump sum of 25,20 dinars (about $1310 - cash selling price of <> dinars per dollar) per person for travelers outside Iraq.

Also in the general budget:

• The Kurdistan Region's share is 12.6%.
• Its total operating budget is more than 150 trillion dinars ($102 billion).
• The investment budget is more than 47 trillion dinars ($32.2 billion).
• Revenues are more than 134 trillion dinars ($91 billion).
• Oil revenues are more than 117 trillion dinars ($80 billion) based on the $70 oil price.
• Non-oil revenues are more than 17 trillion dinars ($11 billion).

This comes at a time when the country relies on revenues from the sale of crude to cover about 95% of its expenses, achieving in 2022 financial revenues of more than $ 115 billion from the export of crude oil, to be the highest in years, according to official figures announced by the Iraqi Ministry of Oil.

Iraq imports major oil derivatives, such as gasoline, gas oil and white oil. According to the oil marketing company "SOMO", last year witnessed the import of more than 5 million tons of oil derivatives worth $ 5.3 billion, compared to 4.7 million tons and worth $ 3.3 billion in 2021, and gasoline was the most imported with a value of $ 3.8 billion, followed by gas oil with more than $ 1.2 billion.

According to observers, the new taxes will boost non-oil revenues and raise their contribution to 13% (Al Jazeera)

Advantages and disadvantages

Nabil al-Marsoomi, a professor of economics at Al-Maqal University in Basra, said that these taxes will lead to enhancing non-oil revenues and raising their contribution to 13%, but will be offset by an increase in the cost of transporting people and goods and a new rise in the prices of goods and services, whether locally produced or imported, which may lead to exceeding the annual inflation rate specified in the budget by 5% and negatively affecting the standard of living of citizens.

The decree estimates – in his interview with Al Jazeera Net – what these taxes will provide about $ 400 million to the government, but warns at the same time of the negatives that may lead to damage to the standard of living of vulnerable segments of society, adding, "Although these revenues do not add a large amount to the public budget, they may slightly reduce the fuel smuggled abroad."

For his part, Jamal Kojar, a member of the Finance Committee in the Iraqi parliament, said that the Iraqi state, like any other country in the world, imposes taxes when its resources to support its budget are scarce, and here the citizen is the victim and not the governments.

Koger criticizes the imposition of taxes without any corresponding adjustment to the salary scale and the improvement of the situation of citizens, especially the private sector, which is almost non-existent in government budgets, in order to create a balance between tax collection and improving services.

In the event that there are no amendments or improvements in the living conditions of the private sector and the salary scale, the member of the parliamentary finance warns - like the decree - of negative effects that the citizen will pay the tax.

Speaking to Al Jazeera Net, the Iraqi MP wonders about the reasons for limiting the promotion of non-oil revenues through the imposition of taxes, which are ways to support those revenues without going to the resources that Iraq possesses, such as minerals, a good agricultural environment and a sea crossing that can be used in trade exchange, which are living resources that many countries lack.

According to analysts, the imposition of new taxes on goods and services will contribute to increasing inflation (Al Jazeera)

What is the solution?

International economics professor Nawar al-Saadi pointed to what he describes as "distortions" in Iraq's tax system, which he attributed to its lack of reliance on advanced financial systems.

Based on this, Al-Saadi expects that the imposition of new taxes on goods and services will lead to an increase in inflation - contrary to what is included in the budget - especially if it will be borne in the end by the consumer, explaining that this has a significant impact on the poor classes as it will lead to higher prices.

Instead, the professor of international economics proposes a fiscal policy in which tax increases are intended for the upper segments of income and not the poor or low-income people, citing developed countries that impose taxes of up to 60% or 70%, as this increase achieves a double benefit, because it will contribute to improving the state's public finances, and thus enable it to achieve spending that will benefit the poor classes.

He says to Al Jazeera Net that taxes are a tool to increase financial revenues and enhance non-oil revenues, which is very important to reduce the deficit and avoid indebtedness on the one hand, and also a tool to guide the economy towards economic diversification in the long term to strengthen the economy and absorb social problems and achieve political stability on the other hand.

It is worth noting that the Iraqi Council of Ministers voted in the middle of this month on the budget law and sent it to the House of Representatives for approval, but a member of the Finance Committee confirms - to Al Jazeera Net - that the draft law is still with the presidency of the Council and did not send it to the relevant committees in order to start studying and discussing it without knowing the reason for not sending.