The fiscal capacity of a taxpayer generally reflects the extent to which their income or wealth can bear the public burdens imposed by the state. Financial thought advocates for the adoption of the principle of tax justice among taxpayers by considering their ability to pay the respective amounts, a concept known as tax capacity or fiscal ability. This principle entails imposing taxes at varying rates: increasing with the rise in the taxpayer’s income and decreasing as the income diminishes. In cases of higher income, taxes should be levied at an amount that the income can sustain, meaning they should not reach a level that necessitates the seizure of that income. The concept of fiscal capacity necessitates those taxes be distributed according to individuals' economic ability to pay. To accurately understand and apply this concept, it is essential to subject the net taxable base to taxation rather than the gross base, while also taking into account the familial burdens of taxpayers. Additionally, it is crucial to differentiate between various sources of income and implement progressive tax rates in accordance with the increasing fiscal burdens.

Based on the foregoing, most tax legislations, if not all, have considered this concept and demonstrated their commitment by providing personal exemptions, known as allowances, at different percentages and varying rates that are legally exempt from taxation. These allowances are granted to taxpayers to ensure the provision of a minimum necessary for living and to address familial burdens, in accordance with the principle of personal taxation. This principle is founded on taking into account the personal circumstances and familial considerations of the taxpayer, which stands in contrast to the principle of objective taxation that does not consider the aforementioned personal and familial burdens.

Importance of the Research

The significance of our research lies in the realistic and effective determination of the fiscal capacity of taxpayers. Fiscal capacity serves as a valuable indicator for legislators and policymakers aiming to adopt optimal tax policies. By doing so, taxation transcends its fiscal dimension and enters the realm of fair application, thereby fulfilling its expected political, economic and social roles. Ultimately, this approach aligns with the legislative wisdom of tax laws, primarily achieving tax justice, eliminating disparities among individuals in society and establishing a balance between the interests of taxpayers and those of the state's public treasury.

Research Hypothesis

One of the prerequisites and requirements for implementing justice in general and tax justice in particular, is the consideration of the personal circumstances surrounding taxpayers. The state's role extends beyond merely collecting taxes and obligating individuals to pay them; it must also take into account their personal conditions and familial burdens in accordance with their fiscal capacity. This must be done without jeopardizing their existence or standard of living.

Research Problem

Investigating this topic raises several pertinent questions, the foremost being: Has the Iraqi tax legislator implemented a personal tax system that considers taxpayers' personal circ7umstances, financial standing and social status when imposing taxes? In other words, are taxes being levied not solely based on the statutory tax rates but also taking into account the actual fiscal capacity of the taxpayers?

Research Methodology

In this research, we will adopt an analytical methodology, as we believe it is the most appropriate for the nature of our study and its objectives. This approach involves analyzing the texts of tax legislations within Iraqi law, supplemented by scholarly opinions on the subject. By critically examining these legal texts and academic perspectives, we aim to provide a comprehensive understanding of how fiscal capacity is addressed in Iraq's tax system and its implications for achieving tax justice.

Research Structure

To comprehensively understand the details and aspects of this research, the study will be divided into two chapters. The first chapter is dedicated to the principle of fiscal capacity and the foundations upon which it is based, while the second chapter addresses the various forms of applying the principle of fiscal capacity and examines the extent to which the Iraqi legislator has committed to its implementation.

Chapter One

The Principle of Fiscal Capacity and Its Foundation

In order to distribute the burdens of the state fairly among taxpayers, it was imperative to base taxes on their fiscal capacity. However, what must be addressed in this context is the precise definition of the principle of fiscal capacity and the justifications for adopting this principle. Furthermore, most constitutions have endeavored to enshrine the principle of tax justice by determining tax rates in light of the taxpayer's fiscal capacity, which encompasses adjustments in tax rates based on increases and decreases, presence and absence.

Based on this premise, we will divide the study in this chapter into two sections. The first section is dedicated to defining the principle of fiscal capacity and its justifications, while the second section addresses the foundation upon which the principle of fiscal capacity is based, as outlined below.

Section One

Definition of the Principle of Fiscal Capacity and Its Importance

The study in this subsection is divided into two branches. The first branch addresses the definition of the principle of fiscal capacity and its importance, while the second branch is dedicated to the topic of justifications for the principle of fiscal capacity and the guidelines for determining it, as outlined below.

Part One

Definition of the Principle of Fiscal Capacity and Its Importance

The principle of fiscal capacity necessitates that the distribution of taxes be aligned with individuals' economic ability to bear them. This capacity is determined through tangible and objective elements such as income or wealth [1].

The concept of fiscal capacity pertains to the extent to which a taxpayer can bear public burdens (taxes) without harming their existence or their standard of living. Accordingly, it is considered a composite idea composed of political, economic and social elements that must collectively serve as the foundation for the distribution of taxes among taxpayers. This is because differences in taxpayers' fiscal capacities necessitate varying financial treatments [2].

The principle of fiscal capacity requires that no wealth or group of individuals be excluded from the scope of taxation. Based on this concept, the idea of tax universality emerged as one of the important pillars of the concept of tax justice [3].

Furthermore, the aforementioned principle requires the contribution of individuals, whether they are natural persons or legal entities, through their income or wealth, each according to their ability to bear public burden [4].

Furthermore, some define fiscal capacity as the taxpayer's ability to contribute taxes toward financing public expenditures while maintaining their existence. This means that fiscal capacity is both a human and an economic concept simultaneously [5].

Another definition of fiscal capacity can be presented as the process of distributing the overall tax burden among natural and legal persons in society according to their ability, which is determined by their income and wealth in general [6].

Fiscal capacity is determined through a number of metrics, including net income, net wealth and consumption and expenditure rates. Regarding monetary income, it is observed that the higher an individual's net income, the greater their fiscal capacity to pay taxes. Net wealth, on the other hand, serves as a primary indicator of the taxpayer's economic standing and their actual fiscal capacity, as it is directly proportional to their net wealth. Finally, expenditure can serve as a realistic and acceptable indicator for assessing the extent of the taxpayer's fiscal capacity [7].

We observe that it is not feasible to rely solely on any of the aforementioned metrics and depend on them individually as a true measure of a taxpayer's fiscal capacity. Instead, these criteria must be fully integrated with the taxpayer's overall situation to accurately determine their real fiscal capacity.

Based on the foregoing, the researcher posits that fiscal capacity refers to a taxpayer's ability to bear the tax burden in a manner that does not solely depend on the size of the wealth they possess, but also on personal factors such as the source and utilization of their wealth, as well as the source and use of their income.

Regarding the importance of this principle, it centers on the notion that taxation should commence only when a taxpayer's income exceeds the necessary threshold required to sustain an individual's life, support those who depend on them and maintain their ability to work and their health. There is no justification for imposing taxes in a manner that threatens their existence or standard of living. Additionally, taxing the poor may entail expenses that surpass the value of the taxes collected, thereby diminishing overall tax revenue.

Concerning the criticism that the principle of fiscal capacity contradicts the principle of universality and the contribution of individuals to bearing public burdens, this critique can be addressed by noting that all individuals pay indirect taxes. Moreover, low-income earners may be disproportionately affected compared to the wealthy, particularly through consumption taxes on essential goods.

Part Two

Justifications for the Principle of Taxable Capacity and Criteria for Its Determination

The legislative wisdom behind imposing taxes lies in the necessity of understanding the true extent and dimensions of the taxpayer's actual taxable capacity. This is because, if the tax provision fails to consider this, it may lead to undermining the tax base or reducing it in an unfair and unjust manner. Consequently, such a tax provision becomes subject to challenges regarding its constitutionality.

On the other hand, transparently and clearly determining the taxpayer's taxable capacity helps establish a balance between the state's right to collect legally owed taxes and the taxpayer's right to a fair tax system. Such fairness should be based on the tax administration's awareness of the taxpayer's actual taxable capacity [8].

It is well-established in constitutional jurisprudence that a tax is a financial obligation imposed and collected compulsorily by the state from taxpayers as their contribution to covering public burdens and costs. Taxpayers bear this obligation definitively, without receiving any specific benefit in return for shouldering it. Unlike taxes, a tax payment is not associated with a specific service provided by the state that directly benefits the taxpayer.

Thus, the imposition of taxes must be tied to the taxpayer's taxable capacity, irrespective of any benefit derived from their payment. Otherwise, this would blur the distinction between a tax and a fee. A fee is collected in exchange for a specific activity or service performed by a public entity representing compensation for its cost even if the fee does not precisely match that cost [9].

Among the other justifications underpinning the principle of taxable capacity is that a tax, in essence, is merely a contribution by the taxpayer to bearing the public burdens shouldered by the state. Therefore, in alignment with the principle of tax justice, the determination of the tax rate must be linked to the taxpayer's taxable capacity rather than the benefit that may accrue to them as a result of its imposition.

Moreover, any infringement upon the tax base regardless of the nature, scope, extent, or impact of such infringement if it contravenes the constitution, fails to respect the taxpayer's taxable capacity. Consequently, it undermines the principle of tax justice [10].

As for the criteria for determining the taxpayer's taxable capacity, they revolve around several measures, including net income, net wealth and the rate of consumption or expenditure.

Regarding monetary income, the higher an individual's net income, the greater their capacity to pay taxes and bear their burden. As for net wealth, it is one of the primary indicators and fundamental measures that reflect the taxpayer's economic status and true taxable capacity, as it is directly proportional to the taxpayer's net wealth.

On the other hand, the criterion of consumption or expenditure can also serve as a realistic measure of the taxpayer's actual capacity [11].

Based on the above and in order to achieve tax justice and accurately determine taxable capacity, it is essential to subject the net tax base to taxation rather than the gross tax base. The latter includes debts, interest on debts, rental amounts, raw material costs and additional expenses that should be deducted before subjecting the remainder to taxation. 

In other words, taxable income (net income) is defined as the gross income minus the costs incurred to generate it [12].

This necessarily entails deducting all costs required to generate income from the gross income, as well as taking into account the taxpayer's family burdens. This is achieved by exempting the minimum amount necessary for living expenses and family responsibilities.

Additionally, taxes on low-income amounts allocated for consumption are imposed at reduced rates. Thus, the taxpayer's taxable capacity, in accordance with the principle of tax objectivity, aligns with the amount of wealth they possess. However, it is less than this amount under the principle of tax subjectivity [13]. 

Based on the above, we can conclude that there is no comprehensive or definitive measure or criterion that can be relied upon to establish the rules for determining tax liability. Therefore, there is no issue with relying on a set of criteria that bring the legislator closer to achieving tax justice. The legislator may rely on personal or objective factors, or different standards and may adopt the principle of tax progression to achieve fairness.

Section Two

The Basis of the Principle of Taxpayer's Ability to Pay

Tax is a financial obligation imposed by the state on taxpayers compulsorily, requiring their contribution to cover public expenses. Therefore, its imposition is linked to the taxpayer's ability to pay. Based on this, it is necessary to determine the tax according to precise standards, a principle that most constitutions have embraced by institutionalizing the concept of tax justice through setting its rate based on the taxpayer's ability to pay. Moreover, the law, which is the only means of imposing taxes, plays a role in revealing the legislative wisdom behind it, which must be connected to the necessity of ensuring that the tax provision is tied to the taxpayer's ability to pay. Based on the above, this study will be divided into two parts: the first will address the constitutional basis of the principle of taxpayer's ability to pay, while the second will focus on the legislative basis of the principle of taxpayer's ability to pay, as follows.

Part One

The Constitutional Basis of the Principle of Taxpayer's Ability to Pay

Since tax is the most significant financial deduction that the state collects from individuals to contribute to covering its public expenses, it is necessary to distribute the burdens and public costs, with taxes being among the most important, in a way that is proportionate to the ability of each individual subject to them. For this reason, most constitutions worldwide have stipulated the necessity for the tax system to be based on social justice [14].

Since constitutions strive to protect the rights and freedoms of individuals, the principle of justice has garnered significant attention in all constitutional courts. It is frequently invoked in constitutional challenges and often becomes a focal point for democratic nations, which defend it by all possible means [15].

In light of the great importance of the principle of social justice, its concept has not been absent from constitutional texts. The first significant attention to this principle appeared in the successive French constitutions following the revolution. While the Declaration of the Rights of Man and of the Citizen of France, dated August 17, 1789, did not explicitly address social rights, it did include a specific type of social justice-namely, tax justice. Article 13 of this declaration stated: "The general tax must be distributed among all citizens according to their abilities [16].

The concept of institutionalizing tax justice in constitutions is reflected through the determination of the tax rate based on the taxpayer's ability to pay, where its existence and absence, as well as its increase or decrease, are all governed by this principle. This was emphasized in the Declaration of the Rights of Man and of the Citizen of 1789, which states: "Every citizen has the right, through his representative in the legislative authority, to verify the necessity of imposing a tax by the state. He also has the right to oversee the methods of its collection, its expenditures, its rate, its base and its duration [17].

The researcher believes that the focus of constitutions on the need to institutionalize the principle of tax justice stems from the fact that tax cannot function effectively without applying this principle. Constitutions and constitutional courts have diligently addressed the issue of ensuring that the tax framework remains aligned with the principles of social justice, determining its content and the goal it aims to achieve in light of the values upheld by the constitution. Additionally, it is necessary for income, regardless of its source, to be considered as an added revenue to capital and serve as the primary tax base, guaranteeing its fairness and linking it to the taxpayer’s ability to pay.

Since the legislator's goal in enacting tax laws is to achieve the required balance between two matters the state's right to collect legally due taxes, which are essential for enabling the state to meet its public obligations to individuals and the constitutional and legal safeguards established within the tax framework, particularly regarding the determination of the tax base this base must be identified in a realistic manner as a condition for fairness. The tax base should represent the wealth burdened by the tax, established and defined based on realistic foundations that allow its true value to be determined, free from any speculative assumptions. This ensures an accurate assessment of the tax base and the genuine determination of taxpayers' ability to pay, without overstepping or abusing the discretion of the authorities responsible for the assessment. Such an abuse could lead to the taxation of amounts beyond the actual profits of the taxpayers, affecting their capital and potentially destroying it. In such cases, the tax would be based on unrealistic grounds, violating their legitimate expectations and disregarding their ability to pay [18].

While considering the taxpayer's ability to pay in this manner is one of the important applications of the concept of tax justice, some constitutions provide an independent constitutional guarantee for this principle. This is what the Iraqi Constitution of 2005 explicitly states, as it includes the following provision: "Individuals with low incomes are exempted from taxes in a way that ensures the minimum necessary for living is not affected and this is regulated by law [19].”

We believe that exempting the minimum necessary for living is essential, as this contributes to achieving tax justice. On the other hand, the tax revenue will not be significantly affected, as the exempted tax is often insufficient to cover the expenses associated with its imposition and collection.

Part Two

The Legislative Basis of the Principle of Taxpayer's Ability to Pay

Since constitutional texts cannot encompass all aspects of economic, social and political life within the state, it has become necessary for most constitutions to focus on general provisions related to the rights and freedoms they aim to establish, as well as the organization of political life and the pillars of governance. However, they often do not detail these general goals within the constitutional document itself, leaving the specifics to ordinary legislators. These legislators are tasked with organizing these objectives in light of the general constitutional frameworks.

In line with this, the constitution includes the principle of tax justice, but it does not specify what this principle entails, leaving the matter to the legislator. The legislator, guided by this constitutional provision, is responsible for drafting tax laws that provide a clear definition of what constitutes tax justice, its boundaries, what aligns with it and what contradicts [20].”

Based on this, many tax legislations have adopted a system of personal taxes, which means that tax laws take into account the taxpayer’s individual circumstances, financial status and social situation when imposing taxes. Taxes cannot be imposed solely based on the taxable item, but instead, the true ability of the taxpayer to pay is considered. An example of this is the provision of exemptions for the minimum necessary for living or tax exemptions that align with family burdens. Another example is the differentiation in tax treatment between income sources, where income earned from labor is taxed differently from income earned from capital. This principle is applied in many tax laws and is adopted by numerous tax legislations in countries around the world [21].

While it is valid to use taxes as a means to distribute the burden of public expenses on taxpayers based on fair principles, it is not permissible to impose taxes or determine their base in a way that results in the complete loss of the capital being taxed or a substantial reduction of it. Taxation should not be enacted for the purpose of leading to the loss of the taxpayer's capital burdened by the tax. The constitution and legislation do not intend for taxes to ultimately result in the destruction of the taxpayer's capital.

Based on this, income due to its periodic and recurring nature forms the primary and preferred tax base, regardless of its source, as it truly reflects the taxpayer's ability to pay. In contrast, capital serves as a supplementary tax base, which legislators should only resort to in exceptional cases, on a one-time basis or for a limited period, so that the tax does not consume the entire capital or absorb most of its components [22].

In line with the previous points, it was essential for the tax law, as a branch of public law, to work towards reconciling the interests of both parties in the tax relationship: the taxpayer and the tax administration. This relationship is inherently unequal, as the first party (the taxpayer) is obligated to pay what is legally due and is the weaker party. In contrast, the second party (the tax administration) is the one that imposes and enforces the tax, making it the stronger party in the relationship. Therefore, there is no real equivalence between the two parties, since the relationship between them is not contractually defined but is instead determined by law, through coercion and compulsion [23].

Based on the above, it is essential to formulate taxes in a way that ensures the achievement of tax justice. This should not only apply to the relationship between the taxpayer and the tax administration but should also extend to achieving justice among taxpayers by considering the true ability of each taxpayer to pay. The tax should be determined by precise standards and should only be imposed when necessary. Historically, this has been linked to the existence of legislative councils and their oversight of the executive authority. Thus, the law is the sole means of imposing taxes and it must reflect the legislative wisdom, which is inevitably tied to ensuring that the tax law is aligned with the taxpayer's ability to pay.

Chapter Two

Forms of the Principle of Tax Capacity and the Extent of the Iraqi Legislator's Commitment to Its Application

It was previously mentioned that, for taxation to be fair, it must align with the taxpayer's capacity to pay and their ability to bear the state's burdens. This is because the taxpayer's tax capacity is a crucial factor that must be considered when levying taxes. Failing to do so constitutes a clear violation of the principle of tax justice. Moreover, the principle of tax capacity necessitates adherence to several sub-principles, such as the exemption of the minimum income required for subsistence, exemptions based on family burdens and differentiation in treatment between incomes based on their source and usage.

Although the Iraqi legislator has demonstrated commitment to observing the principle of tax capacity, this commitment has not yet reached the desired level of aspiration. Violations have been recorded against the Iraqi legislator regarding their adherence to this principle. The recorded applications have not yet achieved the ideal form, which revolves around fully considering the taxpayer's actual capacity. 

Based on the foregoing, this section of the study will be divided into two parts. The first will address the forms of adherence to the principle of tax capacity, while the second will discuss the position of the Iraqi legislator regarding the application of this principle, as follows:

Section One

Forms of Considering the Principle of Ability to Pay

Tax legislation is adorned with many forms of tax exemptions, such as political, economic and social exemptions. Under the umbrella of social exemptions, which is the subject of our research, there are several forms, the most common of which include the exemption of the minimum necessary for living, special exemptions for family burdens and the differential treatment based on the source of income. There are other forms as well, but we have chosen to focus on the two previously mentioned, as they are the most prevalent. Based on this, we will divide the study in this section into two branches. The first branch will address the exemption of the minimum necessary for living and family burdens, while the second will be dedicated to the topic of differential tax treatment based on the source of income and the application of progressive tax rates, as follows.

Part One 

Exemption of the Minimum Required for Subsistence and Family Burdens 

Establishing the minimum required for subsistence often aims to shape the state's economic and social policies to combat poverty, ensure the provision of individuals' basic needs and maintain an adequate and socially acceptable standard of living. It serves as an effective tool for achieving tax justice, as it represents a threshold below which income cannot be taxed according to the law.

The minimum required for subsistence is considered a form of individual tax burden and is commonly referred to as the "subsistence level." This term refers to the amount necessary for an individual, under ordinary circumstances, to sustain their life and that of their family both materially and morally [24].

It is also defined as the exclusion of a specific portion of the tax base, whether it is income or wealth, which is necessary to maintain a certain human standard of living for the taxpayer. Without such an exemption, the tax would apply to a portion of every individual’s income required to cover their living expenses, such as food, drink, housing and clothing. The exemption of the minimum required for subsistence, therefore, means exempting the portion essential for sustaining human life [25].

From our perspective, the exemption of the minimum required for subsistence includes any burden placed upon the taxpayer due to social ties, such as marriage or kinship. For instance, a taxpayer may be married with children or may not have children but is legally obligated to support others, such as parents or other dependents.

The exemption of the minimum required for subsistence contributes to reinforcing the principle of tax justice. For taxation to be fair, it must ensure that the subsistence level, which guarantees the taxpayer a decent living for themselves and their dependents, remains unaffected. Collecting taxes from those living in poverty and deprivation undermines the principle of economic efficiency in tax collection, as the costs of collection may exceed the taxes collected. Furthermore, the imposition of taxes is inherently linked to the principle of tax capacity [26].

On the other hand, a taxpayer may bear family burdens, such as being married and supporting a large family. Undoubtedly, these burdens reduce the taxpayer's financial capacity, prompting most tax laws to deduct specific amounts to account for these burdens and to determine the taxpayer's actual capacity.

These laws differentiate between taxpayers with family burdens and those without. For instance, tax reductions are applied at different rates: one rate for single individuals, another for married individuals and a higher rate for those with children. Additionally, the taxpayer's obligations are taken into account, particularly when they are responsible for financially supporting any dependents [27].

The exemption for family burdens, in general, is considered one of the most important means of achieving social solidarity among members of society. By taking these burdens into account particularly those related to family status and the level of dependency it becomes possible to alleviate the severity and burden of taxation on the taxpayer. This approach aligns with the requirements of the principle of tax capacity [28].

However, it is important to note that any state seeking to exempt the minimum required for subsistence and family burdens must establish one or more criteria to measure this exemption. This necessity arises from the fact that tax legislations, particularly in Arab countries, are often designed and implemented for extended periods. During these periods, inflation plays a significant role in affecting individual incomes, especially for those with limited income.

This compels governments to use absolute figures when measuring national income, creating the illusion among citizens that they are striving to improve living standards. However, the true metric that should be relied upon is the average real income per individual. Some suggest that the exemption could be measured using the general price level or by referencing a relatively stable currency or commodity, such as the dollar or gold [29]. 

In general, the researcher believes that there is no obligation for the state to adopt any specific criterion. Instead, the state adopts what it deems appropriate, aligned with its economic policy and suitable for the prevailing social and economic changes in the country. However, the state is, in all cases, obligated to adopt one of these criteria and establish it as a basis for measuring the exemption for the minimum required for subsistence and family burdens.

Neglecting to adjust this exemption renders it unsuitable and inconsistent with the developments of life, distancing it from the principle of tax capacity and, more broadly, from the principle of tax justice.

Part Two 

Differentiating Tax Treatment Based on Income Source and Applying Progressive Rates 

To achieve tax capacity, it is essential to differentiate tax treatment based on income sources. However, this distinction is difficult to implement in general income taxes, while it is more feasible in categorical income taxes. This is because categorical taxes allow for the individualization of taxation and consideration of income sources. 

This differentiation can be achieved by imposing stricter measures on income derived from capital while being more lenient with income derived from labor. Capital income is characterized by stability and is generally unaffected by the taxpayer's personal and social circumstances. In contrast, labor income is directly influenced by the health and social conditions of the individual earning it [30]. The disparity may be attributed to several factors, including the irregular and less stable nature of income derived from labor compared to income from capital. A taxpayer earning their income through labor is vulnerable to interruptions caused by illness, old age, disability, or unemployment, which may result in the loss of income. In contrast, income sourced from capital is generally not subject to such risks, as it is characterized by relative stability [31].

Tax legislators often resort to differentiating tax treatment based on the source of income in order to apply an appropriate economic policy. This approach is characterized by a variety of tax legislations and administrative procedures that align with each type of income and the circumstances of the taxpayers. Different methods are employed in determining the tax base, along with varying approaches and schedules for collection, as well as distinct procedures for appeals and resolving tax disputes.

Due to the diversity of income types across countries, this results in differences in the number of specific taxes imposed in each nation. Additionally, this method is capable of distinguishing between different income sources, which makes it an effective and suitable tool for achieving various social, economic and political objectives. This is accomplished by considering the true tax capacity of taxpayers and alleviating the tax burden on desirable activities while increasing it on undesirable ones [32].

On the other hand, tax legislations aim to determine the amount of tax by applying a specific rate to the taxable base. The tax rate refers to the proportion between the amount of tax and the quantity of the base material that constitutes its taxable value. One of the drawbacks of not setting a fair tax rate is the widespread phenomenon of tax evasion [33].

One of the means through which tax legislators ensure tax justice and consider the taxpayer's ability to pay is by applying a progressive tax rate based on the increase in the taxable base. The ability of the wealthy to pay taxes will certainly be higher than that of those with less wealth. Equalizing the rate despite differences in the size of the taxable base only provides a theoretical equality, as the sacrifice for those with larger taxable bases is less than that for those with smaller ones. True equality requires equality in sacrifice, which can only be achieved through a progressive tax rate. This system ensures that the wealthy pay a higher percentage of tax compared to the poor, whose income is more limited [34].

As a result, most tax legislations tend to avoid applying the proportional tax, despite its simplicity, ease of implementation and potential to achieve equality. However, this form of equality is merely a mathematical equality and not a true equality regarding the public burdens. It is considered an unjust tax because it overlooks the personal circumstances of the taxpayer. It becomes a heavy burden for individuals with low incomes, while individuals with higher incomes may barely feel its impact. Given these considerations, modern tax legislations have shifted away from proportional taxes and adopted progressive taxation, limiting the use of proportional taxes to the narrowest possible scope.

Section Two

The Iraqi Legislator's Position on Applying the Principle of Taxpayer's Ability to Pay

Iraqi legislation includes some applications related to the personal nature of taxation, which may seem more apparent in the context of income tax. However, it has not yet reached the desired level of development, as it has not fully embraced the ideal form of personalized taxation, which would involve complete consideration of the taxpayers' abilities and their family and social burdens. In contrast, several violations have been recorded where the Iraqi tax legislator has violated the principle of personalized taxation. Based on this, we will divide the study in this section into two branches: the first will focus on the forms of applying the principle of taxpayer's ability to pay in Iraqi legislation, while the second will discuss the violations of this principle in Iraqi legislation, as follow.

Part One

Forms of Applying the Principle of Taxpayer's Ability to Pay in Iraqi Legislation

While constitutions and tax laws have refrained from explicitly stating the principle of exempting the minimum necessary for living from taxation, they have generally adhered to this principle in most tax laws. In contrast, the Iraqi constitutional legislator has clearly stated, specifically in item (2) of Article (28) of the Constitution of the Republic of Iraq of 2005, which was mentioned earlier in the discussion on the constitutional basis of the principle of taxpayer's ability to pay, that individuals with low incomes should be exempt from taxes in a way that ensures the minimum living standards are not affected. The Constitution further refers to a law to be issued in this regard. However, this law has not been enacted to date [35].

In the same context, we find that the legislator, in other tax legislations, has exempted an area of 800 square meters from the land tax. According to the Land Tax Law, it states: "The following land parcels are exempt from the tax: A- One land parcel for each taxpayer, not exceeding 800 square meters or their proportional share in it. The tax will be collected on any excess area. The taxpayer has the right to designate the land parcel or share for which they request the exemption [36].

On the other hand, the Iraqi legislator has exempted a residential house or a single residential apartment owned by the taxpayer from property tax. According to the law, it states: "A residential house and a residential apartment are exempt from the property tax imposed under the provisions of the law [37].

Furthermore, Decision No. (120) of 2002, related to the transfer of property ownership or the right to dispose of it, exempted the first 20 million from being subject to the tax on the transfer of property ownership or the right to dispose of it. The decision states: "The first 20,000,000 (twenty million) dinars of the assessed value of the property or its equivalent are exempt from the tax [38].”

Thus, we find that the Iraqi legislator has exempted a certain portion of the taxable base, whether income or wealth, that is necessary to maintain the taxpayer at a certain level of human living standards. The purpose of this is to take into account the taxpaying capacity of tax payers.

As for the exemption for family burdens, Article (12) of the Iraqi Income Tax Law No. (113) of 1982, as amended, set out a number of exemptions. Despite the amendments to this article, it still forms the basic foundation for determining the exemption of the minimum necessary for living and family-related exemptions. These exemptions are based on the taxpayer's social status and take into account their tax-paying capacity [39].

In this regard, the Iraqi legislator made a distinction in determining exemptions between the exemption granted to the wife and the exemption for children who have not reached the age of 18. However, for daughters who have reached the age of 18 (unmarried) and for sons who continue their education (whether in preparatory or higher education), the exemption remains applicable until the son completes his studies or reaches the age of 25, whichever comes first [40].

The Iraqi legislator also granted an additional allowance to taxpayers who reach the age of 63. Here, the true application of the principle of considering tax capacity is evident, as reaching this age inevitably requires medical services due to the higher likelihood of chronic and emergency illnesses. The Iraqi legislator was wise in providing this exemption, as it takes into account the principles of tax justice and the additional expenses that the taxpayer may face. It also serves as a gesture of appreciation for the contributions made by individuals to society, in a manner that aligns with the nature of tax law by easing the burden on these individuals [41].

In order to achieve the concept of tax capacity, it is necessary to distinguish between different types of income based on their sources. This distinction is difficult to apply in general income taxes but is feasible and practical in specialized income taxes. The reason for this is the possibility of customizing the tax system to consider incomes derived from labor, while applying stricter measures to income generated from capital. 

In line with this and in consideration of the principle of tax capacity, there is a variety of tax laws in Iraq, which include taxes on income, property, land property transfer or the right to dispose of it, as well as customs duties. This differentiation allows the tax system to account for the varying financial burdens based on the source of income and ensures a more equitable approach to taxation [42].

Finally, the Iraqi legislator, in line with the principle of tax justice and in consideration of the principle of tax capacity, has adopted a progressive tax rate in the Income Tax Law in general, with some exceptions. This approach also extends to the tax on the transfer of property ownership or the right to dispose of it. The progressive tax rate ensures that individuals with higher incomes bear a proportionally greater tax burden, reflecting their greater financial capacity. However, the exceptions in specific tax regulations, such as for property transfer taxes, aim to balance fairness and practical considerations within the broader tax system [43].

Based on the above, if we were to assess the extent to which the Iraqi tax legislator has adhered to the principles of tax justice and consideration of tax capacity, particularly in the context of income tax, it can be said that these considerations have been taken into account. This is evident through the establishment of exemptions for the minimum necessary living standard and the provision of various exemptions for familial considerations, such as allowances for the taxpayer themselves, allowances for children and age-based allowances. These measures reflect an effort to align the tax system with the financial realities of taxpayers, ensuring fairness and a reasonable burden on individuals based on their capacity to contribute.

Part Two 

Violation of the Principle of Considering Taxpayers' Ability to Pay in Iraqi Legislation 

Tax personalization, which is based on fully considering taxpayers' ability to pay, can only be achieved by taking into account this ability in all its forms. When only some aspects are considered, we are faced with a quasi-personal tax.

In this regard, the current Iraqi Property Tax Law has taken into account the exemption of the minimum living standard but has not considered other aspects of taxpayers' ability to pay. Regarding the tax on the transfer of property ownership or the right to dispose of it, the law has considered progressive taxation and exemption of the minimum living standard.

However, in other cases, such as the current Iraqi Real Estate Tax Law and other indirect taxes, the legislator has not taken into account any aspect of the ability-to-pay principle. In these cases, the tax becomes "objective," where the tax is imposed without considering the personal and social circumstances of the taxpayers. This contradicts the principle of tax justice, which requires that all aspects of taxpayers' ability to pay be considered to achieve balance and fairness in distributing tax burdens [44].

Although the Iraqi legislator differentiated between the family burdens for the wife and children, it is evident that the legislator did not achieve true tax justice and consideration of taxpayers' actual ability to pay, especially in regard to dependent parents, brothers and sisters who are supported by the taxpayer. This oversight is particularly significant in Iraq, where cases of dependency are widespread due to the wars and violent events the country has endured. Many taxpayers are responsible for supporting their parents, siblings and even orphaned children of their brothers and sisters.

Given this, it would be more appropriate for the Iraqi legislator, particularly considering that Iraq has many other sources of revenue, to introduce exemptions for those supporting parents and individuals whom a person is legally required to support. This would better align with the principle of tax justice and a genuine consideration of taxpayers' ability to pay, [45]. Personal status laws require individuals to support their parents and it is not affected by the fact that the legal alimony is one of the expenses that can be deducted, as stated in Article (8) of the Income Tax Law. However, these costs can only be deducted after certain conditions are met, the most important of which is a ruling from a competent court. The question that arises in this context is: What about the voluntary support expenses, which are the primary form of support? Shouldn't they be eligible for deduction?

The argument that the process is complicated and requires a highly skilled tax administration is not acceptable. The tax administration should be developed to handle such issues and it is expected to train its personnel through intensive training courses abroad. The need for an efficient tax administration should not justify ignoring the voluntary expenses, as these are the essence of alimony payments [46].

One of the recorded violations by the Iraqi tax legislator is the decision issued on January 5, 1980, by the dissolved Revolutionary Command Council (RCC) under Decision No. (23), which exempted salaries, wages, allowances and bonuses received by employees in the state and socialist sector from income tax. This decision was implemented starting January 1, 1980 and this approach was confirmed with the issuance of the Income Tax  Law  No.  (113)  of  1982.  However,  after  the war on April 9, 2003, a new direction emerged, subjecting this category of income to taxation once again. The Coalition Provisional Authority Order No. (49) issued in 2004 explicitly stated that these incomes would be subject to tax, specifically in Section No. (11) of the order [47].

The Iraqi tax legislator may be criticized for subjecting state employees' salaries to taxation, as this represents a departure from a principle that had been applied for nearly 24 years and had positive effects on government employees, which were clearly reflected in their job performance and public service. Therefore, this step was not successful for the Iraqi tax legislator, as the incomes of this group are often limited. The application of the principle of tax justice and consideration of the taxpayer's capacity should have resulted in an exemption from taxation. Additionally, since the state is the source of these incomes, imposing tax on them is akin to giving with one hand and taking back with the other.

In conclusion, we present some findings and recommendations deemed appropriate by the researcher for the subject as follows.

Funding

The Iraqi constitutional legislator has explicitly stated the exemption of low-income individuals from taxes in a manner that ensures the protection of the minimum standard of living, as provided in Article (28), paragraph 2 of the Constitution. However, it is worth noting that the exempted minimum standard of living under the law is far lower than the actual minimum required to maintain a decent standard of living for the taxpayer. This becomes apparent when compared with other legislations, despite Iraq's reliance on substantial non-tax revenues, with oil revenues being the most prominent.

In the Iraqi tax legislation, we find that only the Income Tax Law adheres to the principle of tax personality. While personality is the minimum required for personalized tax treatment, in line with considering the taxpayer's ability to pay, its application has been limited. In fact, the principle of tax personality in income tax has not reached the desired level, as it has not fully embraced the complete consideration of the taxpayer's ability and personal circumstances.

Recommendations

It is necessary to consider the sources of taxable income in a manner that reduces taxes on income derived from labor. Additionally, tax relief should be provided for individuals benefiting from essential goods. Moreover, the provisions related to exemptions must be amended, specifically regarding the minimum standard of living. The legislator overlooked explicitly stating this in the tax law, despite it being clearly stipulated in the Iraqi Constitution under Article (28), paragraph 2. This omission constitutes a direct violation of the Iraqi Constitution, which guarantees social justice and provides for a dignified living standard for individuals.

The Iraqi tax legislator should grant exemptions for dependents such as parents, siblings and grandchildren who the taxpayer is legally obligated to support. Given that Iraqi society is traditionally extended, with many households consisting of multiple family members living together under the responsibility of a single breadwinner, especially due to the circumstances Iraq has faced in recent years, including wars and acts of violence, it would have been prudent for the legislator to take into account the actual number of people whom a taxpayer is obligated to support legally and include them in the exemptions.

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