Some small businesses and investment projects are exempt from taxes
Although Kurdistan Regional Government has its own tax system and tax authorities, and collects taxes from businesses, the tax rates for businesses are low and not all businesses pay their taxes according to the tax code.
Zaniar Mohammed Qadir, director of Erbil’s first Tax Office says tax rates in the KRG are much lower than those of other countries and lower than those of the central government. The tax collection process is regulated by the KRG Ministry of Finance and Economy.
“The ministry has created a list that calculates estimated taxable income for different business sectors and the corresponding annual tax liabilities for each type of business,” Qadir said in an interview with The Kurdish Globe. “We have tax experts who classify different business activities, estimate average annual income for each according to some specific measures, and then decide the amounts to be taxed for each business.”
According to Qadir, experts review the calculations and estimations each year, according to market situations and economic factors.
According to the estimates used by the tax authorities, a restaurant such as Abu Shahab City in Erbil has an average annual income of 60 million Iraqi dinars (approximately $50,000), and the amount of tax it needs to pay each year is 7 million ID ($5,800). This is at a time when the actual income of the restaurant could be 10 times higher than the estimates, or more.
The highest corporate tax rate in Kurdistan is 15 percent of the net annual revenues. This is according to the Iraqi Tax Code of 1982, which is still in force in Kurdistan with some amendments made by the Kurdistan Parliament in 2007.
In many countries, investment companies pay higher tax rates compared to other businesses, but in Kurdistan, according to the Investment Law, investment projects are exempted from paying taxes for 20 years. This is an attempt to encourage foreign and domestic investment in the Region to help the economic development process.
Some people ask how much tax is collected from the giant companies in the Region, which have large shares in the market. Some experts believe that tax officials have engaged in corruption with those companies.
“The actual tax rates that should be paid by the companies is not fixed by the Ministry of Finance, but it states that the companies should submit their annual financial reports to the tax office, which evaluates the income, profits and losses of the company and estimates their tax liability accordingly,” Qadir explained to the Globe. “Almost 95 percent of the financial reports submitted by the companies are rejected by the tax department due to inaccuracy in the numbers presented in the reports and under-estimation of actual income of the business.”
According to a set of regulations from the Ministerial Council and Parliament, some small businesses are exempted from paying taxes. This includes private generators who provide backup power supply to the public, farmers, bus drivers and some others.
Dr. Sabah Khoshnaw, a financial expert, said the reason behind the low tax rates in the Region and the government’s non-reliance on tax revenues is because unlike other economies, Kurdistan Region’s economy is a consumer economy and tax rates are only symbolic.
Another reason behind low tax rates is because a major share of the country’s revenues come from oil and the government does not depend on tax revenues for its budget.
“Tax rates are suitable for the rich and not too bad for the poor,” said Qadir.
Sourse: http://www.kurdishglobe.net , Saturday, 13 August 2011, 08:24 GMT