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Missing Millions? The Mystery of Iraqi Kurdistan's Border Taxes

Money collected at Iraqi Kurdistan’s borders with Iran and Turkey should amount to hundreds of millions of dollars for the cash-strapped region. Yet nobody knows where all the cash is going. Critics say…
2.04.2015  |  Sulaymaniyah
Iraqi dinars: Millions are missing from Iraqi Kurdistan's borders.
Iraqi dinars: Millions are missing from Iraqi Kurdistan's borders.

Revenues collected at the borders of Iraqi Kurdistan have been a major source of income for the the semi-autonomous, northern region in the past. And with the current financial squeeze inside the region, thanks to, firstly disputes over oil revenues and the federal budget with Baghdad, and secondly, Baghdad's own economic problems, there's been more emphasis on these revenues recently. After all, they might have some potential to help relieve Iraqi Kurdistan's current financial crisis.

The problem is, although the revenues are clearly being collected at the borders between the region and neighbouring Iran and Turkey, nobody knows where they are going to.

As one senior Iraqi Kurdish official admitted around three weeks ago: “What happens to the revenues collected at the region's borders is a mystery”.

On March 12, Iraqi Kurdistan's Minister of Finance and Economy, Rebaz Mohammad Hamalan, expressed concern about the fact that although a large number of trucks and tankers cross the borders into Iraqi Kurdistan daily, the amount of revenue the government collects from this seems minimal.

The money collected at the borders is mostly in the form of customs and duties and a lot of it comes from land transport, like the trucks. Even out-of-date figures suggest there should be a lot of money collected at borders.

For example, one 2003 book, titled Iraqi Kurdistan: Political Development and Emergent Democracy, noted that 50 trucks per day carrying cigarettes were coming through the border at just one of the region's major crossings - each truck was taxed US$17,500. And that was in 1999.

Another book on the region - Kurdish Quasi-State: Development and Dependency In Post-Gulf War Iraq – wrote that in 2002, revenues at the Turkish border totalled around US$750 million but, the author says, a lot of this went to politicians.

Further estimates can be found in US Embassy cables from 2007 where, based on a duty tax of 5 percent on all goods entering the country and Turkish export figures, the diplomats who wrote the cable thought that Turkish border revenues should be closer to US$100 million – and that's from just one border crossing.

Iraqi Kurdish Finance Minster Hamalan made this statement following a visit to the border crossings into Iran. “The aim of my visit was to follow up on the collection and distribution of revenues at the border,” the Minister said. “There are companies belonging to political parties on the border and they're collecting money from the drivers for each load that crosses – but the money doesn't go into the region's Treasury.”

This statement was possibly one of the first real admissions that there's a problem.

Some of the most important border crossings in Iraqi Kurdistan are the Ibrahim al-Khalil border crossing in Zakho, Dohuk, on the Turkish border, the Bashmakh border crossing on the Iranian border near the city of Sulaymaniyah, Parvis Khan, southeast of Sulaymaniyah also on the border with Iran and Haj Omran, another crossing into Iran but closer to the Iraqi Kurdish capital, Erbil. There are also a number of informal border crossings.

Figures obtained by NIQASH from the region's Ministry of Finance indicate that, before the current financial crisis, income from the four major, aforementioned border crossings totalled almost four trillion Iraqi dinars (around US$860 million) over the past years. However Iraqi Kurdish opposition parties are critical, saying the real figures are far higher.

For example, at one stage the official formerly responsible for customs at the Ibrahim al-Khalil crossing said that, based on his experiences, daily revenues at the borders must be more than US$2 million a day. But again, critics say the daily intake should be more than that for 2013. The reply from politicians is that there's been a decline in the movement of both goods and people across the borders, hence the lower figures.

Former crusading-journalist-turned-politician Ali Hama Salih, who is now the vice-chairman of the Iraqi Kurdish Parliament's Finances Committee, says that he is certain that no figures have ever been given to the Committee about how much money comes in via border revenues.

“Not this year or in previous years,” says Salih, who is a member of the anti-corruption opposition party known as the Change movement, or Gorran. “Not only that,” he told NIQASH. “The Finance Ministry itself is not transparent enough. A big part of these revenues go to other people and other bodies, supported by political parties.” Salih declined to name any names though.

Salih says his Committee has asked for clarification on the border revenues and that some explanations have been forthcoming. However, he adds, the Minister of Finance has also excused himself because, as he says, “he just started following this issue up and he will tell us more when he gets some proper results.”

Up until last year Iraqi Kurdistan's Ministry of Finance was under the control of one or other of the region's two most powerful parties, the Patriotic Union of Kurdistan, or PUK, and the Kurdistan Democratic Party, or KDP. It is currently under the control of the Change movement.

And sources inside the Ministry of Finance in Iraqi Kurdistan say that there has been more attention paid to border revenues recently. As a result, there have also been some attempts to trace the money and look into the issues. Insiders say some customs officials jobs have been changed in an attempt to bring the revenues back to the public coffers.

“The [Iraqi Kurdish] government should be benefiting from this source of income in a positive way and it should reveal revenue sources to the public,” Salih argues. “All this money should come back to the public.”

The head of the region's Office of Financial Supervision says his colleagues have not chased up the border revenues either. Khalid Jawishly says this is because of the financial crisis in the region and because his office didn't want to put any further pressure on at such a hard time. Jawishly wouldn’t comment on rumours that the proceeds collected at the borders go to companies owned by the bigger political parties. He did say that there are plans to investigate this in the near future though.

Economist Alnad Mahawi has conducted some research into how the region collects money at its borders and he says he can furnish several explanations.

The first problem, he says, is the lack of transparency. “About half of the revenues never reach the Ministry of Finance. They are taken by political parties,” he notes.

Secondly, the security crisis caused by the extremist group known as the Islamic State has seen a drop in commercial traffic since the middle of last year. This has caused a further decline in revenues taken at the regional border.

The mystery surrounding Iraqi Kurdistan’s border revenues is not just a local problem either; it's also become yet another source of friction between the region and the federal government in Baghdad.

As with the region's oil revenues, Baghdad says the money collected at the borders should also go back into the federal coffers, from where it will be redistributed.

“Iraqi Kurdistan has yet to give any statements on the revenues they collect at their borders to the federal bodies concerned,” Iraqi MP Ahmed al-Haj Rashid, the rapporteur for the Iraqi Parliament's Finance Committee in Baghdad, told NIQASH. “This has worsened already existing problems between the region and the Iraqi government.”

Rashid noted that neither Iraqi Kurdish MPs nor those in Baghdad seemed to have any idea where the money was. Why can't the Iraqi Kurdish Ministry of Finance tell us how big these amounts are? he asked. Is there no transparency in Iraqi Kurdistan? And why do only a few people seem to know where all this money is? he concluded.

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