Capital Gain Tax on IOCs in Iraq

The South Korean Kogas company operating the Akkas gas field in the Anbar Province is planning to sale 49% of its 100% interest in the field in 2015. Kogas appears to have consulted the Korean Ministry of Finance on this transaction but has not yet informed the Iraqi Ministry of Oil. According to the signed service contract Kogas should provide “one (1) Month prior written notice of its intent”, which is too early for the company to do.

Russian LukOil operating West Qurna 2 has been looking for a partner after the Norwegian Statoil withdrew early soon after signing the contract; and it is reported that LukOil has initiated discussions with possible newcomers.

Other IOCs operating in the country might do the same.  

What should Iraq do?

Iraqi authorities (both the central government and KRG) should consider imposing capital gain tax on any merger and acquisition and the transfer of participating interests that has been or will take place. The possibility of such transactions is normal, usual, and highly probable and could be reoccurring considering the long duration of the signed contracts.

Therefore, in order to protect the national interests by secure more revenues through an internationally practiced and accepted modality Iraqi authorities should consider seriously and promptly the imposition of capital gain tax.

For this purpose the Council of Minster should request the Ministry of Oil, the Ministry of Finance (Taxation General Authority) and the State Consultative Council/ Majliss Shaura Aldawlah to address the issue and prepare draft law pertaining to the imposition of Capital Gain Tax. After approving of the draft law by the Cabinet it should send to the Parliament for enactment in accordance with constitutional process. This should be done soonest!    

Ahmed Mousa Jiyad,

Iraq/ Development Consultancy and Research,

Norway.

Mr Jiyad is an independent development consultant, scholar and Associate with Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: [email protected], Skype ID: Ahmed Mousa Jiyad).