Don’t put all your eggs in one bas­ket!

The Kurdish Globe - - NEWS - By Swara Kadir swara7kadir@aol.com

Econ­o­mists have been wait­ing a long time for the an­nounce­ment Hosh­yar Zibari, the Iraqi Min­is­ter of Fi­nance, re­cently made. It was that the gov­ern­ment will fi­nally start im­pos­ing taxes on cer­tain prod­ucts and ser­vices. This move came to sup­ple­ment the nearly 20 bil­lion dol­lar Iraqi bud­get deficit of 2015.

Many de­vel­oped world economies have sus­tained their na­tional in­come pri­mar­ily through a sys­tem of tax­a­tion and charges levied on goods and ser­vices. Tax­a­tion is a source of na­tional in­come that is to some ex­tent less de­pen­dent on mar­ket fluc­tua- tions and changes in prices of oil and other pri­mary prod­ucts. This has sus­tained sta­ble grow­ing economies in the de­vel­oped global economies even in the face of global mar­ket fluc­tu­a­tions.

There have been a lot of warn­ings from econ­o­mists in Kur­dis­tan and out­side that un­less the gov­ern­ment starts im­ple­ment­ing a proper sys­tem of tax­a­tion, the econ­omy is go­ing to be at the mercy of oil and its price changes. Un­for­tu­nately the re­al­iza­tion came only after oil prices hit rock bot­tom at merely $60 a bar­rel, which is a drop of around 50% since a year ago! This was a les­son learnt the hard way.

There are some at­tempts to en­cour­age mon­e­tary sub­sti­tutes to oil as a source of in­come. Gov­ern­ment sub­si­dies and fi­nan­cial in­cen­tives for other sec­tors such as agri­cul­ture and tourism are pro­vided for. How­ever, th­ese at­tempts are firstly not enough to bring about a sig­nif­i­cant eco­nomic shift. Se­condly, there are no real changes in the tax­a­tion sys­tem partly be­cause peo­ple hate be­ing taxed and it has not been nec­es­sary.

The decision of the Kur­dis­tan Re­gional Gov­ern­ment to im­ple­ment the cen­tral Iraqi di­rec­tive to levy taxes on tele­com and in­ter­net ser­vices is a wise one. It al­lows the gov­ern­ment to have an al­ter­na­tive to oil to deal with fis­cal dis­as­ters like the huge bud­get deficit re­cently ex­pe­ri­enced. This decision should con­tinue even if oil prices rise again as there are no guar­an­tees in the oil mar­ket.

I re­mem­ber my eco­nomics teacher told me once that the key to a sound econ­omy is not to put all your eggs in one bas­ket! I guess the oil bas­ket is not the best one any­more!

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