TEHRAN: The Iranian National Tax Administration has earned 810 trillion rials ($20.9 billion) in tax revenues so far in the current Iranian year (started March 20, 2016), according to its chief Kamel Taqavinejad. “An aggregate of 1,010 trillion rials (about $26 billion) is projected to be earned from tax and duties by the yearend,” he was quoted as saying by the Persian daily Iran. “Last year’s tax revenues, excluding earnings from duties levied on goods and services, stood at 680 trillion rials ($17.6 billion).” According to the INTA chief, tax revenues constitute 36% of the government’s total revenues and close to 50% of the current budget come from tax collections.
The budget bill proposed by the government for the 2017-18 fiscal year projects greater revenues from taxes than from oil exports–up to 70% of the overall revenues. “Recovering unpaid taxes is INTA’s priority this year. Up until now, the administration has managed to collect nearly 135 trillion rials ($3.5 billion) of arrears,” he said. Years of restrictions on Iran’s foreign transactions, which were mostly associated with a steep decline in oil price, left the Islamic Republic with a tight budget, forcing the government to reconsider its tax code. Lack of a comprehensive economic database, widespread tax exemptions and ambiguous regulations, along with a general failure to uphold the law, are minimizing tax revenues. About 60% of Iran’s economy do not pay tax, including 40% that are exempt from tax and the 20% that evade tax payment. Tax evasion is estimated at 300 trillion rials ($7.7 billion) annually. By rolling back tax breaks, the government could, at least in theory, cut its budget deficit, which stood at 430 trillion rials ($11 billion) in the first half of the current Iranian year. Members of the Iranian Parliament approved in December a ban on giving “new” tax exemptions and discounts for the next five years. The move, though the wording “new” would cast doubts and create ambiguities over its consequent implementation and perhaps gives rise to misinterpretation, infringement and abuse–has had mixed reactions on the part of economists and experts ever since it was passed.
Most such tax breaks are granted to public and semi-private companies. The government ban on new tax exemptions can level the playing field for all economic entities. Yet the move could hurt producers in deprived areas and increase unemployment as a significant fraction of tax discounts are granted to producers in deprived areas. Noting that about 120 trillion rials ($3.1 billion) of tax revenues were allocated to municipalities last year, the official said this year over 30 trillion rials ($776 million) have been put at the disposal of Tehran Municipality alone. “Identifying new taxpayers and broadening the tax base is also pursued by INTA. To that end, the department for combating tax evasion was inaugurated in September within the administration, which works in conjunction with the anti-money laundering office of the Ministry of Economic Affairs and Finance,” he said. According to Taqavi-Nejad, value added tax and duties on goods and services account for half of tax revenues and the remaining 50% come primarily from direct taxation. Stressing that all real and legal entities, except for ministries, organizations and some sectors of municipalities, must pay taxes, Taqavi-Nejad said the tax-to-GDP ratio in Iran stands at 7.3%, which should rise to around 11% as per the sixth five-year development plan (2017-22). Tax revenues account for 25-30% of GDP in developed countries. Iran’s five-year plans offer a medium-term roadmap designed by the government and Majlis to help achieve sustainable growth, outlining strategies in its budget planning for the next five years.
