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New instructions- Taxes in Iraq

The tax system in Iraq suffers from several issues from a legal and tax calculations perspective, the most important of which are:

  1. COMPLEXITIES OF TAX LEGISLATION: The tax system in Iraq faces complexities in tax legislation, as tax laws considered complex and sometimes unclear, making it difficult for taxpayers to understand and comply with it.
  2. TAX EVASION: Tax evasion is one of the most important issues facing the tax system in Iraq, as some taxpayers evade paying taxes by providing inaccurate information or concealing real income.
  3. POVERTY OF TAX AWARENESS: Many taxpayers in Iraq suffer from a lack of tax awareness, as they may not be aware of tax laws and its obligations, which increases the possibility of unintentionally committing tax mistakes and violations.
  4. DELAY IN COLLECTIONS: The tax system in Iraq is facing delays in collections, as bureaucratic procedures and complexities may cause delays in collecting due taxes, affecting the government’s income flow.
  5. SUPERVISION AND CONTROL: The tax system in Iraq suffers from a lack of oversight and monitoring, as there may not be sufficient mechanisms to verify the accuracy of the information provided by taxpayers, which increases the chances of committing fraud and manipulating tax data.
  6. CONFLICT OF LAWS AND LEGISLATION: The tax system in Iraq faces conflicts in tax laws and legislation between different directorates, which increases confusion and complexity in applying taxes and creates legal gaps that some taxpayers exploit to avoid paying taxes.

On this basis, the following decisions were issued by the Council of Ministers and will be approved by the General Authority for Taxes starting in 2024. A summary of these decisions is as follows.

CABINET DECISION No. (24074) of 2024

At the beginning of 2024, a higher committee was formed to follow up on the tax reform process in the Prime Minister’s Office, headed by the Chairman of the Conference’s Scientific Committee and membership of relevant authorities and specialists. The committee has wide powers to execute the decisions of the tax reform conference and prepare the necessary instructions. It has the right to seek the assistance of a specialized advisor, and to submit periodic reports to the Prime Minister.

IMMEDIATE MEASURES FOR TAX REFORM

  1. Expanding the tax base, by reviewing those registered and including those who are not registered, such as doctors, pharmacists, dentists, medical professionals, medical equipment, and private hospitals, in cooperation with the relevant authorities, while developing a scientific and logical calculation mechanism for taxes.
  2. New activities subject to income tax, such as advertisements in the media and social media for the full notification and start date of the activity.
  3. Electronic Application companies are subject to income and withholding tax, provided that the complete data and the start date of activity are provided.
  4. Developing a sales system for upscale restaurants and hotels, in cooperation with the relevant authorities and the General Commission of Taxes “GCT”
  5. Estimating the tax on universities and private colleges on the basis of actual income, before its approval by the Federal Board of Supreme Audit, in accordance with the provisions of the Income Tax Law.
  6. Private schools are subject to the self-assessment method of tax calculations, based on the submitted data to GCT, in accordance with the decision of the Council of Ministers.

PROCEDURES FOR CALCULATING PROPERTY TAX

  1. The first procedure involves re-estimating the value of the land and building in line with the actual market prices. The value of the building is estimated based on its area and classification (such as excellent, first, second, etc.), and the cost of the building is determined according to the building grades. These estimates are used as a guideline for mortgage purposes, with the mortgage value not to exceed 70% of the appraised value. As for non-community properties, a fixed percentage of 5% from the estimated value or the declared allowance is applied, while maintaining the legally described exemptions. As for the joint properties, tax procedures are limited to the stakeholders (buyer and seller) without the need for the participation of other partners.
  2. The annual revenues on the property are calculated at a rate of 5% of the estimated value of the property, in accordance with the joint regulations between GCT and the Real Estate Registration Department, or the declared allowance is determined, and the tax amount is calculated based on that, while the actual estate tax law continues to apply.
  3. Real estates’ owners are exempted from the amounts of interest and fines incurred due to non-payment of the property tax; they are given a time period of up to 4 months to pay the amount of the due tax without the need to undergo tax disclosure procedures.
  4. The rental allowances that are subject to the property tax are updated every 3 years, unless there is any change in the property or its use, based on the taxpayer’s request and without the need for tax disclosure procedures.

SECRETARIATS AND FOREIGN OIL COMPANIES

  • It is permissible to provide a non-objection letter to companies and individuals before completing the tax calculations process, so that taxpayers can continue their activities, with the need to mention that the non-objection letter is not considered a release of liability, and taxpayers aiming to obtain the letter must commit to approaching GCT within 90 days to determine the stability of tenders or contracts. In the case of taxpayers who are subject to a contract or tender, they must pay the tax amounts immediately.
  • It is permissible to transfer the increases in withholding taxes to direct deduction tax for the taxpayer himself, whether natural or legal.
  • The results of the final audited financial statements for taxpayers are accepted and used in tax calculations, withholding taxes, if any, are for taxpayers to settle in accordance with the decision of the Council of Ministers.
  • The competent technical departments in the Ministry of Oil determine which activities are considered oil and which are not, in order to determine the amount of tax deduction between it, which ranges between 15% and 35%.

CARS

  • Individuals who import a personal car for personal use will have their registration will be cancelled for once during the fiscal year, without the need for having registration or tax record.
  • Private transportation vehicles, loads, mass transportation, and work vehicles are subject to tax, and tax amounts are determined in fixed amounts, and are paid in the Estimation Unit in Traffic Directorates, without the need to approach the branches of the GCT, unless the taxpayer has another source of income.

INCOME AND ALLOWANCES

  • Fines and interest incurred by income tax taxpayers, whether individuals or companies, will be cancelled, provided that they approach the GCT and pay the original tax within a period not exceeding a maximum of 4 months. Companies such as OIL, MOBILE TELECOMMUNICATIONS, INTERNET, and SUBCONTRACTING connected to the foreign oil companies are excluded from this decision. If the companies do not pay the tax in the second time, they are exposed to legal penalties.
  • There is no need to approach those with low incomes, as long as their incomes are within the limits of tax allowances. However, if these limits are exceeded, they must approach GCT or one of its branches; otherwise, they will be subject to the legal accountability. Official and semi-official bodies must also not ask individuals to clear their liabilities after submitting a declaration confirming their compliance with the limits of tax allowances. Official and semi-official agencies and government institutions must also submit lists of the individuals’ names who have submitted declarations of their compliance with the tax allowance limits to GCT on a monthly basis.

GOVERNANCE AND AUTOMATION POLICIES

  • Implementing electronic archiving of files according to the specific timetables, while adopting the tax number to retrieve data of the taxpayers. This aims to organize and facilitate access to tax information in an effective and timely manner.
  • All departments of GCT are included in a specific and clear plan for executing the electronic governance, starting with the corporate departments and ending with the departments of large income taxpayers and direct deductions. The importance of this step is that it is applied to the small sample of taxpayers who achieve high revenues in the GCT, which contributes to enhancing transparency and improving tax procedures.

ADMINISTRATION

  1. Completely removing duplicate names from computer systems and dealing with similar names without additional information.
  2. Settlement of fines and interest for owners of factories, laboratories, and tourist facilities, provided that the tax is paid within a specific period.
  3. Allocating partial settlement of interest and fines to companies not covered by certain conditions.
  4. Calculating the tax estimate for imported and goods electronically.
  5. Providing allocations to purchase the comprehensive tax system (ITAS) in the annual budget.
  6. The Financial Supervision Bureau participates in audits processes to ensure integrity.
  7. Accepting payrolls for workers in the private sector and applying direct deduction to it.
  8. Assigning GCT to calculate the tax and directing other entities to provide the required information.
  9. Preparing an incentive system for employees of GCT in accordance with specific laws.

CABINET DECISION 23527 OF 2023

The Council of Ministers decided at its meeting held on 17/9/2023, in accordance with the guidance of the Ministerial Platform and the Ministerial Book on the Economy, the following:

  1. Accepting the accounts and financial statements approved by a licensed auditor and certified by the relevant professional council, provided that they are stamped and signed by the auditor and taxpayers, whether they are individuals, entities, companies, or offices with GCT.
  2. As for the financial statements submitted by taxpayers that have not been audited, they must adhere to the provisions of the commercial bookkeeping system for income tax purposes (Law No. 2 of 1985), and are regulated by certified audit offices affiliated with the Syndicate of Accountants and Auditors.

This decision includes the following:

  1. Pay the tax and clear the liability directly based on the previously mentioned data.
  2. Auditing the accounts submitted according to a coordination mechanism between GCT, the Federal Board of Supreme Audit, and the Society of Certified Public Accountants.
  3. Requiring taxpayers, especially importers, to submit a document proving their clearance issued by GCT.
  4. Cancel the computer query for purchasing foreign currencies for taxpayers.
  5. Withholding taxes are not collected at border crossings. Rather, tax calculation is carried out at the GCT’s center.
  6. The decision applies to taxpayers who defaulted on tax calculation before its issuance.