ERBIL, Kurdistan Region — To dodge taxes and customs fees which the Iraqi government exacts on the goods exported to southern Iraqi cities, some companies are abandoning their permits in the Kurdistan Region and heading towards Baghdad.
According to figures from the Kurdistan Regional Government’s (KRG) Directorate General of Planning and Following Up in the Ministry of Industry and Trade, there are about 3,899 factories in the Kurdistan Region.
Prior to the financial crisis and the fight against ISIS, many of them were running. However, due to issues with exports to Iraqi cities and low sales in Kurdistan, many of them closed down until the end of 2015.
About 45 percent of the factories are running again and sell 70 percent of their goods to Iraqi cities. The Iraqi government, under the pretext that the factories aren’t registered in Baghdad, considers their products foreign, thus collecting customs fees.
To alleviate the issue, some of these factories have dissolved their permits from Erbil obtained one in Baghdad.
“The Iraqi government’s excuse for imposing customs fees on the exports of products of Kurdistan Region’s factories to Iraqi cities is that we [in the Kurdistan Region] use an expired law in Iraq for giving permits and establishing factories,” said Mustafah Zubeir, the technical director and supervisor of factories in the KRG Ministry of Industry and Trade’s Directorate General of Industrial Development.
He revealed that about 100 factories have left Kurdistan for Baghdad to avoid this issue.
The KRG uses Law No. 25 from 1991 on Industrial Development to regulate mixed-market and private sector factories. Currently Iraq’s Ministry of Industry uses Law No. 20 from 1998. Baghdad soon plans to amend that law.
“To end Iraq’s excuse and remove the fees on products from Kurdistan Region’s factories, in November last year, we sent an official letter to the [KRG] Council of Ministers to amend the law, and they accepted that in April of this year. Then they sent an official letter to Iraq’s Council of Ministers, and then they sent an official letter to Iraq’s Ministry of Industry, but we are yet to receive a final answer,” Zubeir added.
“The Iraqi law is more developed, and its articles are positioned towards the interest of factory owner’s and factories,” Zubeir argued.
Most of the goods exported from Kurdistan’s factories to Iraqi cities are comprised of sanitary products, construction material, plastic, food and other products.
Zubeir rejected that the move would hurt the Kurdistan Region’s economy. He believes factories will remain in the Kurdistan Region, but the taxes and fees the companies paid for renewing permits will go to Baghdad now.
What does the private sector think?
Sherko Sheikh Mohammed, CEO of Jawhar Taj Company and factory for producing tissues, said 90 percent of his products are sold in Iraq and each trailer carrying his goods gets charged $2,500.
“This customs [fee] has had great impact on decreased revenues for our factory. That is why we had no other option but to dissolve our permit in the Kurdistan Region and registering it in Baghdad,” Mohammed added.
Sherko’s factory, before the establishment of the Safrah customs point by former Iraqi PM Haider al-Abadi between Kirkuk and the rest of Iraq when Kurds held Kirkuk, used to work two shifts per day and produce between 25-32 tons of product depending on demand.
Since then, however, his factory only works 8 hours per day, and has a total output of 12-16 tons. Only one trailer with his products goes to Iraq daily.
Dissolving their permits and obtaining another in Iraq, besides the high costs, isn’t devoid of problems. Factory owners say they have fears that they will face trouble due to dissolving their permits in Kurdistan.
Daim Plastic’s factory in Erbil has the capacity to produce monthly 500 tons of products like chairs, dustbins and other plastic products. Eighty percent are exported to Iraq.
“Iraq’s checkpoints occasionally exact fees based on tons, and at times based unilaterally. Between $1,400-1,500 of customs fees are collected for any passing load,” said Nahro Abdulrahman, the owner of the factory.
“Some of that money goes into the supervisors of the checkpoints because only $850 is written on the receipts,” claimed Abdulrahman.
He further added that it isn’t easy to obtain an Iraqi permit, as it costs over $15,000, and it requires a lot of ‘wasta’ (connections).
“We have received land from [Kurdistan’s] Municipality [ministry]. We are afraid that if we dissolve the permit here, then the municipality will demand the land back,” added Abdulrahman.
Out of 2,377 factories in the Erbil province, 2,254 of them have obtained a permit from Erbil’s Industrial Development Directorate. Currently 43 percent are working. Twenty-five factories in Erbil have transferred their permit to Baghdad.
“We don’t find the transferal of permits to Baghdad to be the solution because the factories will have to then pay some taxes and fees here and there. That is why we find it a problem best solved on a high governmental level. Some steps have been taken to that end, but it requires more work,” said Tayib Kazhou Ali, the director of Erbil’s Industrial Development.