Recent tax developments in Iraq include approval of the 2015 draft budget, a possible measure to impose goods and services tax on the telecom sector, and new deemed profit rates from the General Commission for Taxes in Kurdistan.
On 23 December 2014, Iraq’s cabinet approved a draft 2015 budget worth about 103 billion US dollars (USD) in a move made possible by improved ties between Baghdad and Iraq’s autonomous Kurdish region. The draft budget envisions a deficit of about USD25 billion, with revenues based on a protected oil price of USD60 per barrel.
On 29 January 2015, Iraq’s parliament has approved the 2015 budget law. The final budget is worth USD105 billion, with a deficit about USD22 billion and an adjusted oil price of USD60 per barrel.
This law imposes sales tax on mobile and Internet charging cards at 20 percent, on air travel tickets and vehicle purchases of all kinds at 15 percent and buying vehicles of all kinds and on cigarettes and alcohol drinks at 300 percent. The law authorized the Ministry of Finance to issue the required instruction to implement these sales tax measures in all of Iraq.
Iraq has been hit hard by the collapse in oil prices, although the International Monetary Fund recently reported the country’s economic contraction would be less than originally forecast – just half a percent according to one estimate1. The currently projected deficit of USD25 billion could grow much higher if oil prices continue to decline.
Out of total expenditures, the budget allocates USD38.6 billion to investment projects. Oil revenues are projected to constitute 85 percent of total revenues for 2015.
The General Commission for Taxes in Kurdistan introduced specific deemed profit rates for different sectors to be applied on assessing taxpayers’ income for the 2015 assessment year (2014 financial year) and for the 2015 financial year.
Although Kurdistan tax law allows the carry forward of losses, the tax system depends heavily on deemed profit assessments in cases of losses and low margin net profits.
Taxpayers can challenge deemed profit assessments where they can make a strong case in representations with the tax commission. These representations involve the presentation of records, supporting documents and appropriate analysis to demonstrate the accuracy of the financial statement results to the tax commission.
The new deemed profit ratios for certain important sectors are as follows:
|Source of revenue||2015 Assessment year (2014 Financial year)||2015 Financial year|
|Supply contracts (except food products)||9%||10%|
|Other supplies: construction, maintenance, paint, repairs, instleftallation, transportation in general, blacksmithing, carpentry, loading and unloading, and all other kinds of contracts||6%||8%|
|Installation and commissioning||7%||9%|
|All kinds of food product supplies to all entities||6%||6%|
|Research, feasibility studies, supervision, scientific and engineering offices and agencies, etc.||15%||20%|
|Security protection contractors||8%||12%|
1Source: Iraq business news