Kurdish law makers should tax individual higher earners

By Mufid Abdulla:

Tarin Hills, Erbil

This article flows from the recent local news that there are 30,000 dollar millionaires in the south of Kurdistan. First of all we must ask ourselves what Kurdistan produces to create such a high-calibre rich class, or what innovations has the region seen in the past decade to justify this?

In the south of Kurdistan the highest earners are politicians and merchants of arms and oil. Since 2000 a class has been created that dominates whole sectors of the market. As an example the two main telecoms companies – Korak in Erbil and Asia Cell in Suli – are dominated by the two ruling parties’ contacts and cronies.

We also have in Kurdistan at least 650,000 civil servants claiming salaries from the state while unproductively employed.

We have a small percentage of the population who are high earners, including the leadership of the two ruling parties and members of the Kurdistan parliament and Iraqi parliament.  Foreign observers find it difficult to really understand what is going on because Kurdistan’s economy doesn’t follow any of the models for market economies.

The politicians have become very rich in a number of ways:  First, by controlling most commercial land in the cities and towns and reselling it to the public; Second, by controlling most of the contracts for building schools, roads and so on, although using different names and giving nominal control to others who they have appointed; Third, by taking commission on most public contracts and public job appointments.

As citizens of Kurdistan we the right to ask:  why do we have to subsidise their lifestyles – their face lifts and hair dye, frequent holidays for wives and sons, and apartments in the Lebanon, London, the Suli German village and the Erbil English village?

These millionaires, especially the politicians, are deeply irresponsible towards their own people and the future of this country. They must get a wake-up call, forcing them to pay tax like everywhere else in the world.

The President of the Kurdistan Region has at least 20 advisors. These advisors are getting lucrative salaries, tax free, for doing nothing.

If the salary is $10,000 per month, after deducting $6000 as personal allowances, if you tax the remaining $4,000 at 20% it raises $800 per month. Applied across the region, this would raise millions for public expenditure. This money could be spent on schools, hospitals, police services, etc.

The current system is not encouraging people to work hard and the Kurdistan Regional Government (KRG) is not adopting the correct finance and economic policies.

Every year the politicians help themselves to the biggest slice of the little cake that is Kurdistan’s budget and they are giving nothing back. The trend of society in south Kurdistan is towards increased inequality and injustice.

Schwiauer and Wenig in their papers investigated “the determinants of the personal distribution of income and wealth. In an overlapping generations model all individuals are assumed to be identical except for their inherited wealth. Since life-time is random the bequest of an individual and thus the inherited stock of capital of its children are stochastic variables. Taxation and social security contributions affect life cycle savings, bequests, and, eventually, the distribution of income and wealth in the society. It is shown that, in general, higher tax rates reduce distributive inequality as long as the rate of interest is exogenously given”.*

The millionaires we have today in the south of Kurdistan are mostly not innovators, entrepreneurs  or inspiring businessman. Instead many are puppets of the two ruling parties, pursuing their personal objectives in the market of Kurdistan to the exclusion of any sense of the common good.

The KRG and Kurdish law makers need to put this matter high up on their agendas and implement a policy to increase government revenue by making sure high earners pay income tax.

High purchase taxes are regressive, benefiting the rich because they affect a smaller percentage of their incomes. But this is what happens with petrol. If ordinary people have to pay heavy levies (introduced by the ex-governor of Iraq, Paul Bremer) on their petrol and oil, why shouldn’t high earners pay tax on their generous incomes? Good quality petrol in Erbil and Suli costs almost $1.00 per litre – unjustifiably high, especially in our small region with its abundance of oil and gas.

Reference:

*Gerhard Schwdiauer and Alois  Wenig,  ‘The impact of taxation on distribution of wealth in an economy with a changing population”, Journal of Population and Economics , 1990 p53-71

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