Although the government abolished the 10% tax on restaurants and cafes a year ago, many venues are now collecting the same amount from customers under the label of a “service” fee. The practice has triggered public backlash, prompting the hospitality association to launch an investigation.

From Tax Removal to Rebranded “Service” Charges

The Kurdistan Regional Government (KRG) removed the 10% sales tax on restaurants and cafes.

However, instead of reducing prices for consumers, many business owners introduced a new billing item called "service." The fee, which previously went to the public treasury as a state tax, is now retained by venue operators as additional profit, on top of already high base prices.

Business Owners’ Justification for the Fee

Lawik Omar, a local cafe owner, said the 10% service charge is intended to cover the cost of providing a comfortable environment, interior design, and general maintenance.

He added that he initially opposed applying the surcharge but later reinstated it due to pressure from other business owners who questioned his refusal to collect it.

Hotels and Restaurants Association Launches Inquiry

Mahmoud Towfiq, Head of the Sulaymaniyah Hotels and Restaurants Association, stated that the association was not aware that customers were being charged a service fee in this form.

He confirmed that an investigation will be launched to examine the legality of the charge and determine the regulatory basis on which it is being imposed on citizens.

Tax Structure Concerns and Pressure on Businesses

On the other hand, restaurant owners argue that government tax assessments place significant pressure on them.

They say taxes are calculated based on the number of tables and chairs rather than actual annual profits. For example, one business owner reported paying 34 million Iraqi Dinars (IQD) annually despite very low sales.

This mismatch has led to calls for reforming the tax system to better align taxation with real business income.