Introduction - Emerging Markets (Iraq)

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1.1Background of the Study:

Regarded as one of the emerging markets, Iraq’s scenario presents a paradox and continues to provide challenges in which it intends to operate from both its tax and also its regulatory perspective. In spite on this, it continues to lay emphasis and increasing effects on companies particularly foreign investment that are been attracted by its wealth of opportunities.

Going by the last two decades which has presented a picture quite interesting in its tax regime as many of the businesses are gaining knowledge of the nation’s tax obligations and thereby seeking direction on required prerequisites to compliance.

Our study intends to focus on the Kurdistan region of Iraq, a semi-governing region in Iraq currently exercising its own independent regulatory environment and laws and recently been viewed as a largely favourable environment for business. However taking a pragmatic position there continues to exist a degree of incertitude relative to the experience holding against the laws of both Iraq and the Kurdistan region. This extends to the degree where Iraq does not acknowledge the Kurdistan region to its own tax implementation which has been in practise by The Kurdistan region since 2007. This research work intends to take an explicit view at the tax regime in Kurdistan.

Taxation is a compulsory levy that every government of a nation or its reserve agency imposes on individuals that are deemed taxable, business enterprises and other bodies to allow the government supply finances necessary for the running of the government and to achieve other macro-economic goals and fiscal policies of the nations government. The orthodox purpose of implementing tax is to raise money for the running of government affairs.

Governments of today use taxation to encourage and discourage certain economic decisions. For example, the reduction in taxable household income by the sum paid as interest on home mortgage loans outcomes in larger construction activity and creates more jobs.

Tax reforms in Iraq have remained part of an advocated model for economic and structural reforms which has continued to form a general transformation in government’s overall fiscal policy. The Tax policies and reforms in the past have had very significant passive function and have continued to maintain this framework.

Since the 1970s, the government has retained its low taxation policy that contributed to the execution of economic agenda. Whilst the economy have remained a free market economy, taxes play a major role in public finance as such grandness goes further beyond the demands to invest in government expenditure on public services and executing the states conventional functions.

In Iraq there are basically two main sources taxes are categorized. Direct taxes which includes: income tax. Inheritance tax, agriculture tax and profit tax. Indirect taxes including: excise, custom duties and stamps. The spread in tax base, tax evasion and tax burden lacks mass data and information. Nevertheless it is widely realised that because of corruption, false information and a narrow tax base there exists a blanket range of increasing tax revenues particularly from private companies.

Going further, According to Coalition Provisional Authority (CPA) Order No. 49 depicts an income tax rate of 15% which was set at a flat rate except oil and gas production and new income tax laws impose a 35%rate on oil and gas companies (Ernst and Young, 2010). Also CPA Order No. 84 explains a 15% tax on expatriated dividends, a flat sales tax of 10% imposed on hotels and restaurants, real property is levid a 10% tax rate and a limited fee chargeable on vehicle sales (Iraq International Trade Centre). Authorities have had little or no problems obtaining income taxes from government employees but private and individual companies responsible for to paying income and profit tax have failed to reveal their actual liability.

In recent time there have been problems with companies not keeping to tax obligations which have recently led to changes in government tax policies.

Clearly below are the basic indicators in the new tax system.

Tax Base for individuals:

Individuals Tax Income comprising of wages and salaries, capital gains, interest on savings and heritage

Tax Income Brackets (10%, 15%, 25%, and 40%)

  • 10% for sums above US$2500 and below US$5000
  • 15% for sums above US$5000 and below US$7000
  • 25% for sums above US$7000 and below US$10000
  • 40% for sums above US$10000

It should be clear that there are exemptions.


  • Income below US$2500
  • Inheritance Tax: Brackets (30%, 60%)
  • 30% for sums above US$50000 and below US$150000
  • 60% for sums above US$15000


  • Less than US$50000

Tax base for Companies:

Companies Profits and Capital Gains: (30%, 60%)

  • Public enterprises accounts may have different criteria for profits assessment and tax brackets.
  • Oil companies’ accounts may have different criteria for profit assessment and tax brackets.
  • All foreign companies are subject to the same tax policy.

1.2Origin of the CPA:

Late 2003 when the United States began their invasion of Iraq, in their aim of a democratic Arab the need for an economic reconstruction of the state was paramount under a coalition occupation. This brought about the coalition’s occupying authority which was later referred as the Coalition Provisional Authority (CPA). The country’s economy lay in ruins following the events of war, sanctions, and a thorough mismanagement.

Up until the early 1980s was her economy viewed as one o the strongest within the Middle East resulting from its vast oil revenues financing the growth and development of good health care system, vibrant infrastructure and a sound educational system as well. But following the war with Iran 1980-1988 caused a disruption in its oil production, collapsed investment leaving the country with grave debts. Also followed were international sanctions placed on the country in 1991 contributing further to the economic breakdown which later followed with corrupt practices ineffective command of the state. Placing the country as one of the poorest countries in the region as at 2000.

Relevant authorities of the coalition system after assessing what laid ahead of them realized the magnitude of reconstruction need. This further initiated a collective mandate to strengthening the CPA.

1.3Reforms Enacted by the CPA:

The coalition policy makers in the successful stabilization of the economy initiated several reforms which included:

  • Reinstating the country’s national food ration distribution.
  • Introduction of a new currency and having a strong hold on the exchange rate.
  • Government economic institutes were quickly rebuilt.
  • Promulgated taxation, core investment, market oriented banking and furthermore.
  • Reconstruction of schools and health centres.
  • Increased oil output and power generation.

It should be clear that the CPA’s economic establishment were dwarfed by unrealized promises and failed to deliver some of the listed above.

With interest in the tax formation of the state, the CPA initiated a new tax regime placing a top individual and uniformed business tax rate at 15 per cent. Nevertheless it failed to establish a collection system for obtaining new taxes and as a result the inability for government to generate tax revenues.

With efforts to tax collection being problematic because Iraq never possessed a functional tax collection system until recently.

1.4Statement of the Problem:

Following the understanding of the prevalence and pervasive nature of tax regime, the crusade for its obligation and implementation has gained wide spread recognition. In development circle, the need for further appropriate strategy for application and compliance still remains an abiding issue.

In recent times, the focus on tax reformation has been led by the international developing communities with the relevant reformation policies as an important fulcrum. It is informative to be aware of the very relevant objectives by policy makers in Erbil, Kurdistan, Iraq to implement core tax reforms and policies, a number of them have been devoted to addressing the issue of compliance by many of the organizations within the state.

Source: Organisation for Economic Co-operation and Development (Centre for Tax Policy and Administration).

Following these targets, it has been observed by the CPA Report that the goals aimed towards an enhanced tax system can be achieved in the coming years. Interestingly too, knowing the Kurdistan region is a more secured region in Iraq poses the question of a better tax system suitable to support foreign investment. The figure given below shows an illustrative representation of the share doing business in Kurdistan region of Iraq and the type of businesses following other relevant comparisons as well.

Types of Business in the Kurdistan Region

Source: Business Attitudes towards Political and Economic Reconstruction in Kurdistan. CIPE Presentation, February 29, 2008.

How Goods and Services are paid for in the Kurdistan Region.

Source: Business Attitudes towards Political and Economic Reconstruction in Iraq. CIPE Presentation, February 29, 2008.

Factors that Negatively Affect Company Growth in the Kurdistan Region.

Source: Business Attitudes towards Political and Economic Reconstruction in Iraq. CIPE Presentation, February 29, 2008.

Against the above background, the critical question is whether we can confidently assert that tax obligation, implementation and compliance has been achieved when more businesses still find the region a profit base environment which would possibly pose more problems if it is not well managed at the early? In addition, what are the prerequisites for the registration of new companies and the compliance measures of old companies in drawing the sample size to produce such a result, while clearly as the above statistics revealed, a number of organizations within the region may find it easy to evade tax payment. Finally it is either that the parameters for measuring tax compliance and implementation is unreliable and thus not in accord with the dictates of the tax reforms and policies; or that we need to invent a measurement system that takes into consideration local and foreign investments.

1.5Aims of the Study:

The goal of this research work is on the focus and to explore primarily the cause for delays in tax payment by companies in Kurdistan in Iraq and strategies taken by authorities to limiting the effects of delay tax payments.

This would be done through the divergent discourse on tax systems and policies therefore, in order to achieve this aim; this research will be delving into varying notions of Tax Laws according to the Coalition Provisional Authority, extensive research and scholarly debates. Also an evaluation of relevant policy documents like the Coalition Provisional Authority (CPA) and Centre for Tax Policy, Kurdistan Regional Government Amendment and Administration (CTPA), amongst others.

1.6Research Objectives:

The objectives of this study are to:

  1. Establish the role of the CPA within the context of Taxation implementation.
  2. Ascertain the policies and programmes have been set up at various levels in Kurdistan with strong emphasis on regulating and enforcing Taxation.
  3. Investigate the measures exercised by the government in Tax defaulters and frameworks for following delays in Tax payments by companies or corporate bodies.
  4. Critically examine the activities of the Kurdistan Tax authorities in Iraq drawing lessons from them.
  5. Explore the reforms and policies in place, participatory approaches and evaluate how far they have progressed against set target and milestones in policies and reforms which will lead to strong conclusion and recommendations.

1.7Research Questions:

The following research questions would be considered in the course of the research.

  1. How far Kurdistan has progressed in their effort to achieving fairness and transparency in Tax reforms?
  2. Have the various reforms and policies which were instituted by the government in achieving a transparent Taxation system made an impact?
  3. In what ways have policies under the framework of the Taxation Laws been abided by corporation in Kurdistan?
  4. What are the perceptions of corporations on Tax policies and regulations?
  5. What lessons are to be learned and what steps should be taken in order to avert the occurrences of Kurdistan from achieving the goals of delay tax payments and evasion?

1.8Research Methodology:

The methodological apporach to be applied in this research will be qualitative, quantitative and based on evaluation research because this research aims to assess the milestone of the tax systems and reforms in the selected companies in Kurdistan. Evaluation is best suitable for this research because it deals with the evaluation of reforms and strategies. (Bryman 2012) In this case, the reforms and policies geared towards achieving an effective tax system will be highlighted. In Bryman’s book on Research Methods, he explains that evaluation research delves into essential questions like has a policy and or reforms achieved anticipated goals? Therefore, experimental design will be used in evaluation research to ascertain groups companies adhesive and not adhesive in the policy process (Bryman 2012, Flick 2011) On the other hand, positivist ontology will be used to derive empirical evidence on the body of literature that exist in this research. This according to Bryman (2012) helps a researcher to discern the philosophical position in research. The research is a qualitative and quantitative based because mathematical modelling, analysis and interpretation will be drawn from inferential statistical data, questionnaires, reviewed texts with the aim of understanding the reform processes in Kurdistan and the efforts towards policy implementation. The rationale behind qualitative and quantitative research is to have a comprehensive inductive and deductive view of the research with outcomes gotten from in depth study. (Bryman 2012).

1.9Data Analysis:

This research intends to explore policy documents in government organizations in order to come up with a broad understanding of prospects and challenges that Kurdistan's Iraq may face in achieving goals tax obligations, implementations and compliance by organizations. An analysis of the measures taken by the government since the inception of the programme through the evaluation methodology will be appropriate for analysis. Therefore, taking into cognisance process, it would provide in details progress in the reforms, steps undertaken, difficulties in measuring accurately the progress made, the challenges that may likely militate or hinder the government and responsible institutions of Kurdistan from achieving this goals tax implementation. The research will also highlight lessons to be learnt and strategies for overcoming the challenges of tax reforms.

In achieving this, secondary data like policy documents on CPA and Centre for Tax Policy, Kurdistan Regional Government Amendment and Administration (CTPA) will be evaluated, policy documents, past research work, published texts and journals, will be reviewed so as to get first-hand information on the programme. A case study of Erbil, a community in Kurdistan, Iraq will be investigated and reviewed with a focus on the steps and implementation strategies of the Taxation programme.

1.10Limitations of the Study:

The study will be limited to Kurdistan, Iraq as this is the case study that will be used to explore the topic. Other goals in the Tax adherence will not be addressed as a result of the vast scope of the goals and the limited time frame for the submission of the project.

On the other hand, assess to complete policy and reform documents may be another limitation to the study as sometimes, these may prove problematic. Finally, this research is limited to being a project for MSC Business Management.

1.11Organization of the Study:

This piece of work will consist of five (5) chapters. Chapter one is an introduction of the topic and provides a general overview of the subject of study. Chapter two, deals with the review of relevant literature. The third chapter is concerned with the methodology used for this study. The fourth chapter presents the findings through an analytical interpretation of the research, focusing on the key themes that have been identified in the analysis. Chapter 5, which is the final chapter, draws upon the entire thesis, tying up the various theoretical and empirical strands in order to arrive at the conclusion. Finally, the conclusion gives a brief summary and critique of the findings, its recommendations, interpretations and includes a discussion of the implication of the findings for future research work.


There is a good deal of evidence that tax payment delays and failures that occur amongst organizations in Kurdistan, Iraq which is similar to numbers of crucial respects, including failures to abide by tax laws and policies, unrestrained and unimplemented tax reforms and policies, corruption and general economic instability

The delayed and unpaid taxes suggest that the simplification of going by the rules and regulations made by the government have been dismissed allowing for non-tax compliance. Thereby suggesting that organizations failure to pay taxes, rest on the sole problem of poor administration, implementation and execution by the authorities.