ERBIL, Kurdistan Region – A workshop on creating a well-developed taxation system in the Kurdistan Region and diversifying the economy beyond oil and gas opened the second day of an important economic forum in Erbil by the Middle East Research Institute (MERI) on Thursday. A panel of experts -- and several government officials in the audience -- presented their views on where the Kurdistan Regional Government (KRG) should go at a time of severe economic crisis that is pushing this autonomous Kurdish enclave in northern Iraq close to bankruptcy. Panelists argued over the urgency of creating a taxation system, and whether it was important first to have taxation or a diverse economy. According to Chatham House Rules that require journalists not to quote speakers by name, experts and officials spoke candidly about the status quo and where the Kurdistan Region needs to go. One local official disclosed that the Ministry of Finance and Economy is not immediately focusing on public taxation, but on collecting trade tariffs at the borders. “We have calculated that 450 billion Iraqi dinars can be collected per month in border tariffs, and this will rise,” said one official. But even tariffs collected at the borders is a problem, another official explained, because of financial and political issues that Kurdistan faces with the central government in Baghdad. He explained that trucks carrying goods across Iraq are often taxed twice – once in Kurdistan and once by the central government in Baghdad, creating a negative environment for trade. More than one official and expert explained that Kurdistan remains shackled to a point, because it remains a part of Iraq and must abide by outdated Iraqi laws, including on taxation. That, officials explained, limits the reforms that Kurdistan can carry out on its own. But a US taxation advisor to the KRG suggested that thinking about taxes without having a diversified economy is like talking about the chicken before the egg. He emphasized the importance of prioritization. “Taxation doesn’t come first,” the American advisor to the KRG said. He said that the most important thing is to move toward a diversified economy. Thinking about a well-developed tax base without a diversified economy, “is like flying without a plane,” he said. “If the KRG began working on a non-hydrocarbon tax system when 90 to 100 percent of the economy is dependent on oil and gas, what will you achieve? Not much. What would you tax?” “The order would be how to get from a hydrocarbon-based economy to a diversified economy, and in the process think of developing a tax base,” he stressed.
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