Don’t put all your eggs in one basket!
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!