Complicated tax structure weighing down Iraq’s fledgling government and its citizens
September 28, 2008
BAGHDAD — Everybody gripes about taxes. But most people know they are a necessary evil, and when the tax system does not work smoothly, often the country doesn’t either.
That is one of the problems in Iraq. The centralization of tax money in the country slows crucial ground-level projects that American cities and counties are accustomed to completing on their own. Iraqi communities that face unexpected problems can find it hard to fix them in a timely manner.
"If it breaks, it stays broken," said Maj. Timothy Collier, the brigade civil affairs officer for 2nd Brigade, 101st Airborne Division.
Iraqi money must flow through no fewer than four levels before it reaches the streets of Baghdad. It originates in the federal government’s Ministry of Finance, then goes to a provincial government. From there, it goes to the "Amanat," or city hall. Finally, it goes to the "beladiyas," or public works districts spread around the sprawling city. The beladiyas have budgets based on population and other criteria, but they must submit requests back up the chain for many projects.
"There’s a lot of bottlenecks," said 1st Lt. Dale Kooyenga, the economic officer for Multi-National Division—Baghdad.
The Iraqi government is also still developing the machinery necessary to process the money, further slowing the current of cash, he said. It doesn’t have enough skilled people, computers and other essentials necessary for expediting spending requests.
"Imagine if our government was asked to double what it buys," Kooyenga said, explaining the challenges Iraq faces.
To these difficulties, the Iraqis have added their own bureaucratic challenges. In his civilian life, Kooyenga is a certified public accountant who works with procurement processes for Fortune 500 companies. Yet he still finds the Iraqi process incredibly complex.
"It’s amazing they’ve made it so complicated in such a short period of time," Kooyenga said.
In the United States, city and county governments would probably just lobby for authority to levy their own taxes or ask the state legislature to route the money directly to them through funding formulas. Both options face prohibitive hurdles in Iraq.
National taxes tend to be simpler than local taxes, said Robert Shapiro, a former U.S. undersecretary of commerce for economic affairs and the co-founder of Sonecon, an economic consulting company.
An income tax, for example, is based on a single, relatively fixed number: How much someone made that year. Property taxes, on the other hand, are based on the value of property, which is constantly fluctuating and subject to dispute. Iraq doesn’t have the ability to send out thousands of tax assessors in order to assess properties and bill their owners.
Property ownership in developing countries is also often contested. In India, for example, 90 percent of property is subject to legal dispute, Shapiro said. Numbers for Iraq aren’t available, but U.S. soldiers often find it difficult to track down the owner of a particular piece of property they want to use. In other cases, angry villagers complain that the land their neighbors claim to own is really government land that they should pay to lease.
Sales taxes would face similar difficulties in Iraq. Developing countries tend to have informal economies where it’s difficult to track sales, Shapiro said. Many businesses are one-person companies without a fixed address. In Iraq, shepherds herd their sheep from pastures right into city centers and donkeys carry farmers’ crops from fields to market stalls. No one tracks how many sheep the shepherds butcher or how many leafy greens the farmers sell.
For the foreseeable future, it appears Iraq will need to rely on oil revenues and anything it collects from the 15 percent flat tax that the Coalition Provisional Authority mandated in 2003.
In the meantime, anti-corruption controls slow down the process of routing the money directly to the beladiyas. The checks and balances that make the funding process so slow also keep officials from siphoning money away for their own use, Kooyenga said.
Coalition forces work with government officials to speed the process along, but they tend to focus on the larger projects, he said. Officials have worked to develop neighborhood advisory councils and district advisory councils to stimulate bottom-up pressure for projects.
Not all the difficulties come from the top. Beladiyas across Iraq have their own problems such as difficulties finding contractors and moving projects along on schedule, both potentially fatal to a venture if the fiscal year slips by before that year’s money can be spent.
Shapiro said lack of money, not where that money comes from, is the root problem for most developing countries, but Kooyenga said he hasn’t seen a problem with funding shortfalls. Most likely, Iraq is helped along by its oil revenues. Yet the effects can be the same on the streets of the beladiyas.
"The problem isn’t that [a funding request] is coming back saying there’s no funds," Kooyenga said. "The problem is it isn’t coming back."