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An Evil Plot?
Iraq's Most Industry-Savvy Province Refuses to Impose Baghdad's New Customs Tax

Ali al-Uqaili
A new customs tax came into effect in August. But in Basra, one of Iraq's busiest provinces for imports, officials refuse to impose Baghdad's tax, saying its unfair use is damaging business there.
5.10.2015  |  Basra

There are over a thousand cars parked in a Kuwaiti port on the Iraqi-Kuwait border. There are another thousand or more parked in the Umm Qasr port on the Iraqi side of the border. And apparently they are all sitting there because the importers and exporters refuse to pay the newly-imposed Iraqi customs duty, that has come into effect as part of Prime Minister Haider al-Abadi's package of financial and administrative reforms.

“We have suffered serious financial damages because of the delay in shipping our products from Kuwait,” local businessman, Saleh al-Sharifi, complained to NIQASH. “And we are paying for the costs of these delays.”

Local importers see the duty as unfair. “The new customs tax has only been applied in Basra – specifically in the ports of Umm Qasr and Safwan,” al-Sharifi says. “Meanwhile it doesn't seem to be being applied in the north in Iraqi Kurdistan. It feels as though there are double standards here. Or maybe the Ministry of Finance only actually has power over the ports of Basra?”

In fact the Iraqi government has already said in the past that it doesn't have control over border crossings in Iraqi Kurdistan.

“We had to ask the officials at the Kuwaiti port to stop allowing imported cars in because we don't have enough space for them in our parking lots,” says a senior official in Safwan, noting that all their car parks are full.

“The main square is full of cars imported by merchants who refuse to receive them,” says Hashim Adnan, the director of Umm Qasr's southern port.

“Dozens of traders and transporters have been affected by the implementation of this new law in the middle of this year,” adds Ahmad Jabbar al-Darraji, another businessman from Basra. “In the past the tax was only at about 3 percent, now it's risen to 15 percent, and the delays in business are causing people to stop working and lose their jobs.”

The laws on customs and taxes are controversial, and the customs duties have been being debated for some time. But as global accounting giant, Ernst and Young, announced in the middle of 2015: “On June 4, 2015, the Iraqi General Secretariat of the Council of Ministers announced that the Council has resolved to approve the imposition of customs duties and sales taxes with effect from 1 August 2015. Customs duties and sales taxes are to be collected at all points of entry without exception, in accordance with Article 33 of the 2015 Federal Budget Act”.

After an initial surge in sales and imports shortly before the tax came into effect, trade has now dropped off. A source at the port of Safwan told NIQASH they believed that business at the port had dropped to below half the volumes being done before the imposition of the new customs duty.

Basra's provincial council has also come out against the tax. The local government refuses to apply it for the Ministry of Finance, says Sabah al-Bazouni, head of Basra's provincial council. The aim of the tax, “is to damage the province's economy while the economy in Iraqi Kurdistan thrives,” al-Bazouni argues.

The current Minister of Finance in Iraq is an Iraqi Kurdish politician, Hoshyar Zebari, and, in a way typical of Iraqi politicians who tend to blame sectarian or ethnic bias, or corruption, for all the country's woes, al-Bazouni says he believes the customs duty is part of a plot to damage southern Iraq's economy while promoting the economy of the semi-autonomous northern region.

If that is the aim, then it appears to be working. Apparently the people of Basra are already heading north when they want to buy cars.

“Prices for cars in Iraqi Kurdistan are about US$4,000 to US$5,000 less than in Basra because the Iraqi Kurdish haven't applied the new customs duty,” says Ahmed al-Khaldid, a car dealer in Basra. “A lot of the new cars coming into Basra have Iraqi Kurdish licence plates.”

The customs duty doesn't only affect vehicles. All kinds of other products have also increased in price. Local economists believe that this is because hardly anything is produced locally anymore so many things are imported and therefore subject to sales taxes. Many analysts say that Iraq has had a relatively open border for imports for such a long time, that domestic industries have been badly impacted.

Local economist Abdul Rahman Hamid al-Saidi believes that the Iraqi government should be more careful about the way it introduces and implements such taxes.

“The introduction of a sales tax should be gradual and there shouldn’t be any surprises that can confuse the market,” al-Saidi told NIQASH. “And the federal government should ensure that decisions are implemented in all parts of Iraq to avoid impacting imports and speculation in domestic markets.”

Additionally al-Saidi thinks it would be a good idea to impose taxes on imported goods that could actually be made inside the country, as a way of protecting and encouraging domestic production and businesses other than the oil industry upon which Iraq is so dependent.

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