DINAR REVALUATION REPORT: Iraq's Tax System Development for Investors in 2024, 9 SEPT

Iraq's Tax System Development for Investors in 2024

In 2024, Iraq is in the process of developing a tax system that is attractive to investors. 1 The government is keen on enhancing fiscal space and opportunities for countercyclical policy, especially in the wake of the macroeconomic volatility caused by overdependence on oil revenues. 1 This move is part of a broader effort to diversify the economy and reduce the impact of oil price fluctuations on the country's budget and overall economic health.

Current Economic Situation and Challenges

Iraq's economy, heavily reliant on oil, has faced significant challenges in recent years. The unemployment rate, particularly among the displaced, returnees, women jobseekers, and those in the informal sector, has remained high. 1 The COVID-19 pandemic exacerbated existing economic issues, leading to a sharp contraction of 11.3% in real GDP in 2020. 1 However, there are signs of recovery as oil production increases and COVID-19 restrictions ease, allowing for a gradual restoration of domestic economic activity.  1

Tax System Reforms for Investors

Iraq's tax reforms aim to create a more stable and predictable investment climate. The government is working on improving oil receipts, which turned the overall fiscal balance to a surplus in 2021. 1 This surplus was partly due to budgetary gains from higher oil prices and measures to mobilize non-oil domestic revenues, primarily from customs. 1 These efforts are crucial for attracting foreign direct investment (FDI) and stimulating the private sector, both of which have remained weak. 5

Investment Law and Policies

Iraq has put in place an investment law (Investment Law No. 13 of 2006) that offers various incentives and protections for investors. 4 This law defines the roles and responsibilities of the National Commission for Investment and other regional and governorate commissions in granting investment licenses and overseeing investment projects. 4 The law also outlines the rights and obligations of foreign investors, aiming to provide them with a clear legal framework. 4

Doing Business in Iraq

The World Bank's Doing Business report highlights the procedures involved in starting and operating a business in Iraq. 2 While there are challenges, such as the time taken to complete certain procedures, the report provides insights into the business environment and the steps the government is taking to improve it. 2

Conclusion

Iraq's efforts to develop a tax system that is more welcoming to investors are part of a comprehensive strategy to diversify the economy and reduce dependence on oil revenues. By improving fiscal space, enhancing domestic revenues, and creating a more stable investment climate, Iraq aims to attract more foreign investment and stimulate growth in the non-oil sectors. The government's focus on legal frameworks and investment laws, along with improvements in the ease of doing business, are key steps in this direction.