Analysis of Iraq’s Tax Revenue Performance Relative to GDP
The Middle East and North Africa region is experiencing a marked disparity in tax revenue contributions from non-oil sectors, with Iraq demonstrating particularly low figures.
Tax Revenue Governance in Iraq
According to Manar Al-Ubaidi, the head of the Iraq Center for the Future for Economic Consultations, tax revenues in Iraq currently constitute between 5% and 15% of GDP, depending on financial legislation and policies. For the year 2024, the Iraqi gross domestic product (GDP) is estimated to be around 320 trillion Iraqi dinars, while tax revenues are projected to reach approximately 7 trillion dinars.
This indicates that tax revenues represent a mere 2.2% of GDP, a notably low figure when compared to international standards, despite the existence of frameworks such as tax and customs tariff laws aimed at regulating these revenues.
Challenges Impacting Tax Revenue
Al-Ubaidi further highlights that if public sector employee taxes—often considered unproductive due to high rates of disguised unemployment—are excluded, the true percentage of tax revenues potentially drops below 1%. This is amongst the lowest levels globally.
The decline in revenue is largely attributed to weakened economic trust among the active populace regarding the utilization and allocation of tax revenue. A prevalent societal perception exists, viewing taxes primarily as a means to cover governmental operational costs, with significant concerns about potential corruption and inefficiency in expenditure. This perception undermines the intended objectives of tax legislation, which include generating sufficient revenue to fund essential services such as healthcare, education, and infrastructure development while promoting social equity.
Building Trust in the Tax System
Al-Ubaidi emphasizes that a critical challenge in augmenting tax revenues lies in cultivating citizen confidence that tax contributions will have tangible benefits for them and their families. This can be achieved through enhanced transparency in government operations, particularly in the collection and allocation of tax revenues.
He advocates for a strategic shift where tax funds are not utilized to meet operational needs or cover public sector payrolls—areas where citizens feel they have no agency or input. Instead, Al-Ubaidi proposes that taxpayers should have the option to designate how their contributions are spent—whether in healthcare, education, infrastructure, or other vital areas reflective of their needs. This could involve incorporating choices directly within tax forms to empower citizens regarding their tax dollars.
Conclusion: Enhancing Transparency to Foster Compliance
To foster greater compliance and improve tax revenue performance, Al-Ubaidi calls for a robust framework of transparency involving the regular publication of precise and accessible data on revenue collection and allocation. By aligning tax expenditures with taxpayer preferences, the government can cultivate greater trust in its tax system, thereby encouraging individuals to fulfill their tax obligations voluntarily.
The continued reliance on tax funds for government operational expenses, without accountability, risks creating a culture of tax avoidance and may drive citizens toward unethical practices, such as bribery to reduce tax liabilities. Hence, establishing a transparent and responsive tax system is vital for enhancing both revenue generation and public trust in governmental fiscal policies.