“Tax reform”: A harsh reality facing Iraqis in 2026

“Tax reform”: A harsh reality facing Iraqis in 2026

2025-12-29

Shafaq News – Baghdad
As Iraq approaches 2026, the citizen faces a sensitive economic reality, governed by a difficult equation between the need to maximize the state’s financial revenues and to maintain the citizen’s purchasing power in light of the large financial deficit the country is experiencing, with the urgent need to provide monthly salaries for employees and workers in the public sector amid growing fears of declining oil prices.

Despite the increasing talk about taxes, the figures indicate that non-oil tax revenues remain limited, not exceeding about 3.7 trillion dinars, while public expenditures exceed the 150 trillion dinar mark, reflecting the continued almost complete dependence on oil as the main source of financing the general budget.

According to economists, the current tax policy is based on improving collection and combating evasion by including unregistered activities within the tax system and expanding the use of electronic collection, without imposing new direct taxes.

However, some of the measures will indirectly affect citizens, particularly the self-employed and small traders, who will face higher tax obligations compared to previous years, posing a double challenge between boosting revenues and protecting the purchasing power of Iraqis.

Financial balance

In this context, former member of the parliamentary finance committee, Mu’in al-Kadhimi, says that the new tax system that the current government has been planning for a year aims to increase non-oil revenues, noting that 90 percent of Iraq’s revenues come from oil, while the percentage of non-oil revenues must gradually increase to avoid any crisis in the event of a drop in oil prices as is currently happening.

Al-Kadhimi adds to Shafaq News Agency that the government is counting on the tax authority as one of the most prominent avenues for increasing revenues, explaining that the authority is currently operating with the new automation system, and must carry out its work professionally, far from extorting the reviewers in Baghdad and other governorates.

He affirms that the goal is for the government to have annual tax revenues of no less than 5 trillion dinars, in addition to 5 trillion from the Customs Authority, and 2 trillion dinars from the Media and Communications Authority, in addition to collecting other services from electricity, water and various ministries, bringing the total to about 20 trillion dinars annually.

Al-Kadhimi points out that this increase in revenues will have effects on citizens, especially with regard to the tax imposed on imports, which amounts to about $70 billion annually, stressing that there is a positive aspect to the increase in revenues for the government, compared to a negative aspect which is the pressure on prices and their rise in the markets.

Tax justice

For his part, economist Bassem Jamil Antoine explains that taxes are an essential part of financing the state treasury, along with fees and customs, noting that there are two interrelated aspects between the citizen and the state.

Antoine tells Shafaq News Agency that citizens must be convinced of the importance of taxes and how they positively impact their services, salaries, and retirement, stressing that the citizen’s conviction is important to ensure the fairness and credibility of the tax system.

He adds that taxation, when moderate and proportionate to income, is a means of running the state, but it must achieve social justice so that those with high incomes pay in proportion to their income, noting that the nature of the economic system plays a key role in determining the tax rate and its importance.

Affected segments

For his part, economist Ahmed Abdel Rabbo confirms that the government did not impose new taxes directly, but rather adopted a policy of deferred taxes in exchange for tightening collection and expanding the tax base.

Abdul Rabbo explains to Shafaq News Agency that current measures, such as including unregistered activities and using electronic collection, can raise revenues by between 10 and 20 percent without imposing additional burdens on citizens.

He adds that some segments, especially the self-employed and small traders, will face a higher tax obligation compared to previous years, while proposals related to wealth taxes or income tax restructuring remain postponed due to their social and economic sensitivity.

Abdel Rabbo concluded by saying that 2026 will be a year of regulating the tax system more than a year of imposing new taxes, with the need to link tax collection to improving services to ensure economic stability and reduce the fragility of public finances in the face of fluctuations in oil prices.

This comes in light of past experiences that have proven the controversial nature of taxes on citizens, especially the tax on phone and internet recharge cards, as the government’s decision to reimpose a 20% tax on recharge cards sparked widespread public discontent.

Experts point out that Iraq began reforming its tax system several years ago, with the government launching programs to improve tax collection by automating departments and integrating unregistered economic activities into the system, in cooperation with global consulting firms such as Oliver Wyman, with the aim of building a fair and transparent tax system that enhances non-oil revenues and ensures social justice.

shafaq.com