Committee on staff, which we recommend (para. 52). The yield of taxes and duties, and, in particular, the land revenue, should improve, as the efficiency of Government staff is improved. On the whole, it is not unreasonable to expect that in these matters the growth in revenue will more than offset the net growth in expenditure. By the end of the Treaty period, in 1928-29, the normal burden of the charges for the Ottoman Public Debt will have decreased, in any event, by some 27 per cent., and may have decreased by some 36 per cent., (para. 103). If the cost of the military programme be not further increased, the expenditure on Defence will be reduced after 1925-26 by some 10 lakhs to 125 lakhs. It may therefore be said with some confidence that, if our recommendations be adopted, after 1925-26, the Government should find itself in progressively easier financial circumstances; and that the Budget should balance, and remain balanced, after 1926-27.

17. We desire to emphasise that the realisation of these hopes must be very gravely imperilled by any further expansion in the programme of military expenditure. By laying upon the budget further burdens for defence, the present financial stress may be indefinitely continued, and the work of civil government may be hindered, even fatally. Sound financial policy requires that there shall be no further increase in expenditure on defence beyond that contemplated as essential by the recent arrangement between the two Governments, at least until the finances of the State present a picture very different from that which they present at present. We are of opinion that under present conditions any further substantial increase in military expenditure must be inconsistent with the establishment and maintenance of national solvency.

18. We desire in this connection to refer more particularly to the additional Infantry Battalion (8th Battalion), the establishment of which in 1926-27 we understand to be contemplated if funds permit. At the present time, it would in our opinion be most imprudent to frame policy on the basis that funds would so soon permit of any further expansion of the sort. We draw the conclusion that such increases must not be contemplated without a prospect of further and equivalent financial help from external sources.

18A. We have assumed in this report that there will be no considerable change in the present frontiers of 'Iraq. An unfavourable decision on the question of the northern frontier must have a very serious effect upon the financial outlook. The areas involved are of great economic importance to the welfare of the State, and their exclusion from 'Iraq would alter the whole strategic problem of defence. In the absence of statistical information, it is not possible to make any arithmetical estimate of what the effect of diminished resources, coupled with increased cost of defence, would be.

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PARTICULAR OBSERVATIONS AND

RECOMMENDATIONS.

A. Revenue, etc.

LAND REVENUE.

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19. The first chapter in the Receipts Statement of the 'Iraq Budget is entitled Land and Natural Produce Taxation and Revenue of Government Properties." If the figures for 1924 be taken, the revenue in this chapter amounts to 150 lakhs, or rather more than 30 per cent. of the total revenues of 'Iraq. Of this sum 109.5 lakhs appears under the heading of "Agricultural Produce" and 30.5 lakhs under that of Animals." As the title of the chapter indicates, the revenue comprised in it has really a double character. It is partly taxation, and partly rent or profits. On "lift" or land (land which does not enjoy irrigation by canal) the Government has a claim to 10 per cent. of the gross annual produce if the land is alienated (tapu land), and to 20 per cent. if it is unalienated (miri land). On flow" land (where there is irrigation without pumping) the Government claim as a general rule (for there are many exceptions) is to 20 per cent. of the gross annual produce on tapu land and 40 per cent. on miri land. We are informed that approximately 75 per cent. of the land under cultivation in 'Iraq is miri land, which will indicate how large is the Government's land-owning interest, and what an important item in the revenue that interest represents.

20. We believe that there is more prospect of a substantial increase of revenue under this head in the future than under any other, and we have considered whether any immediate action could be taken to produce or accelerate such an increase. first expedient which suggests itself is the creation of specialised revenue service throughout the Liwas, responsible directly and solely to the Ministry of Finance; but though such an arrangement would have obvious advantages, we are unable to recommend it. We recognise that, under present conditions. in 'Iraq the assessment and collection of land revenue is something more than a straighforward financial task. It is a matter which enters closely into the whole social structure of the country, which affects tribal organisation and the position of the shaikhs, and which cannot be dissociated from general questions of policy in internal affairs. We do not think that the officers who are the principal instruments of that policy, the Mutesarrifs, the Administrative Inspectors, and the Qaimmaqams, could disinterest themselves in land revenue questions without losing touch with the feelings and interests of the various classes in the country to an extent which would very seriously impair their usefulness.

At the same time we are not altogether satisfied with the present division of responsibility in the matter of land revenue between the Ministries of Interior and Finance. The Revenue Department used to belong to the Ministry of the Interior. It now belongs or the embryo out of which a Revenue Department might develope belongs-to the Ministry of Finance. But the local staff on whom it must rely, both for obtaining information and carrying out policy, and especially the Administrative Inspectors who constitute the nerves of district administration, appear to owe allegiance primarily to Interior. The Administrative Inspectorate Regulations contain admirable provisions requiring the Inspectors to carry out the instructions of the Ministry of Finance, to inspect and report upon the work of revenue assessment and collection, and to recommend improvements. But while we are assured that these officers take a keen interest in the questions connected with land revenue, and that the Ministry of the Interior consistently emphasises their importance, the great variety of duties and responsibilities resting upon them appears to leave them too little time and opportunity for concentration on revenue problems.

The

21. We think that the Ministry of Finance requires to be strengthened on the land revenue side by the addition of three British officers as Travelling Inspectors who should tour the country, being sent to review the whole machinery of revenue assessement and collection in any Liwa in which the results are unsatisfactory. It should also be their special duty to instruct and train the 'Iraqi personnel in work of this character. annual cost would be, say, 1 lakh. There is every reason to believe, on the one hand, that this addition to the establishment would from the first bring in additional revenue that would outbalance its cost, and on the other, that any theoretical improvements in the revenue system will, in fact, be unproductive, if the present condition of understaffing on the revenue side is allowed to continue. We think that it is a matter for consideration whether the headquarters' staff of the Ministry of Finance should not be strengthened by the addition of a British assistant to the Revenue Secretary.

22. We believe that the whole question of Land Revenue in 'Iraq requires to be made the subject of special investigation. We can express with confidence the opinion that the present system is unsatisfactory and uneconomic. We are not qualified to design, even in outline, a system which would effectively meet the local conditions. But we think that some of the features which any such system should possess may usefully be indicated. It should embrace a general survey of 'Iraq, so that the areas and situation and boundaries of all land in the produce of which Government is interested may be known. It should embrace a complete registration of title, so that there should be no uncertainty whether a particular piece of land is miri or tapu, whether it is or is not subject to waqf, who is the person

responsible for paying Government its due, and what are the special rights and obligations, if any, of the fellaheen; and so that security of tenure shall be established. In this connection it has been pointed out to us that a recent survey in the Liwa of Basra has revealed that large areas had escaped taxation and that the increase of revenue in a single year covered the whole cost of survey. Further, we think that the principal aim of any new system should be the ultimate substitution of a fixed assessment for the present device of a proportionate levy on the gross produce.

23. We do not think it can be questioned that, as things are at present, the land revenue which reaches the Treasury is a very much smaller sum than the levy which is exacted from the cultivator in that connection. The Government share of 40 per cent. on miri and 20 per cent. on tapu land is a high one, (double what appears to have been the normal share in other parts of the Ottoman Empire), and we do not think that any proposal to increase the figure could be seriously considered. As a matter of fact, reform in Turkish times was generally in the direction of reductions, the effect of which was to bring in more money to Government. But while the collection of this share from the fellah rests with the shaikh, or landlord (mallak), an intermediate agent (sirkal), or a tax-farmer (multazim), and is probably conducted with efficiency, it must not be assumed that a like amount reaches the Treasury. Collection from the shaikhs and mallaks is often not made in full, and we find that in the Ministry of Fianace there is a feeling that remission or non-collection has sometimes been due to political considerations. (On March 31st, 1925, it was calculated that more than 39 lakhs of land revenue were still outstanding, after allowing for remissions of nearly 16 lakhs during a period of three years; but we are informed that further remissions amounting to 20 lakhs will probably be authorised.) There are also obvious weaknesses in the system by which the Government share is assessed. The demand will be made on a powerful tribal shaikh, or landlord, or other local personality. The estimating committee consists of smaller folk who have no disposition to incur the hostility of men of substance. Sometimes it includes intending purchasers of the crop who hope that a pessimistic estimate may find its reward in a discount from the price. The Ministry of Finance can object to an estimate sent in, and set up a second committee to revise it, but the machinery seems to be complicated and ineffective; and in any case, the process of under-estimation must be very glaring indeed if it can be detected and arraigned from headquarters. This is a matter in which the services of the Travelling Inspectors whom The evidence we have proposed should be particularly useful. that the estimate of crops is almost always less than the reality was overwhelming. It must be remembered that the landlord and the fellah get their due share of the actual crop. It is only the Government which has to be content with a percentage of

an estimate, and if that estimate is too low the difference goes to the benefit of the landlord. Under-estimation, as well as slack collection, would seem to be clearly evidenced by the large fortunes amassed by shaikhs in districts where the Government receipts are trifling.

24. In some areas the system of iltizam, or tax-farming, is in force, and its wider extension is sometimes advocated. It saves trouble and it reduces friction. But we do not think that it is in the interests of government. The introduction of the professional multazim is often the introduction of a fresh source of trouble into a district. If the local shaikh or sirkal is the multazim, there is probably no competition at the auction, and the privilege of tax-farming is sold too cheap. Even when there is competition, a knock-down price" has very often been arranged beforehand between the competitors. The multazim is required to give security to Government for the funds due from him. In practice, it is found that the security is invariably over-valued, and if it falls into the hands of Government it is a very inadequate set-off against the revenue lost.

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25. Speaking quite generally, we were advised that corrupt practices were extremely widespread in 'Iraq-a circumstance which we put down as an inheritance from the Ottoman régime,— and that they permeated the whole system of revenue assessment and collection. If this is so, it furnishes a conclusive argument in favour of the substitution of a system of fixed assessment which would eliminate many of the opportunities for fraud. In any case, it may be pointed out that the levying, as tax, of a share of gross produce is a method which is economically unsound. It definitely penalises any extra expenditure which the taxpayer puts into the land, and therefore penalises that intensive cultivation, for the spread of which any real development of agricultural conditions in 'Iraq must wait. A fixed assessment, based on the natural productiveness of the land under normal conditions, would offer inducements to keener effort, increased expenditure on tools and equipment, and improvement of property. A proportionate tax on the gross produce discourages them all.

The system of fixed assessment or muqtu' is in actual operation in the Amara district, but we are informed that the assessment was necessarily prepared on most inadequate data, and was, in fact, little better than guesswork. It is accompanied in Amara by the system of iltizam or tax-farming, and there is every reason to suppose that the tax-farmers pay less to the Treasury, and extract more from the cultivator, than they should.

26. The "Government share," comprising both tax and rent or profit, is paid in cash and not in kind. A conversion rate is fixed by the Ministry of Finance. On this part of the process of tax collection there is little criticism to be passed. We were told that there were grounds for suspecting favouritism in the