EghtesadOnline: Forty percent of Iran’s economy are exempted from paying taxes, the director of Iranian National Tax Administration said.
“Tax revenues account for up to 85% of the governments’ current expenditure in some countries; whereas in Iran, the ratio barely reaches 50%,” Mehr News Agency also quoted Omid Ali Parsa as saying.
Latest statistics show the five-month period since the beginning of the current fiscal year (started March 21) saw a 45% rise in tax revenues to 530 trillion rials ($4.62 billion) compared with the same period of last year.
According to INTA chief, the growth in tax revenues is partly because of recovering overdue payments and putting in a great deal of efforts to fight tax evasion by tracking down banking transactions, Financial Tribune reported.
The government earned 1,090 trillion rials ($9.51 billion) in tax revenues during the last fiscal year (ended March 20, 2019).
Direct tax revenues, including “tax on legal entities”, “income tax” and “wealth tax”, stood at 640 trillion rials ($5.58 billion), registering an increase of 15% compared with the year before.
Earnings from tax on goods and services hit 450 trillion rials ($3.93 billion), indicating an 11% year-on-year growth.
A total of 1,400 trillion rials ($12.27 billion) has been projected in tax revenues this year (March 2019-20).
Besides tax exemption, the government budget in Iran also suffers from widespread tax evasion.
Gholamali Jafarzadeh Imenabadi, a member of Majlis Plan and Budget Commission, puts the size of tax evasion at 400,000 billion rials ($3.49 billion) annually.
“Up to 800,000 billion rials [$6.98 billion] will return to the government coffers [annually] if the current legislation on tax exemption was reformed and reviewed. I believe the value of tax exemption and tax evasion together is more than 1,000 trillion rials [$8.73 billion],” Fars News Agency quoted Imenabadi as saying.
Value added tax accounts for the lion’s share of total tax revenues in Iran with 23.5%, as per figures by the Iranian National Tax Administration, followed by corporate tax and import tax. This is while income tax makes up the biggest share of tax revenues in high-income countries. Corporate (company) tax is the second top earner of such revenues in Iran.
The tax-to-GDP ratio rose from 5% in 2013-14 to 6% in 2018-19, indicating a 20% growth, according to Plan and Budget Organization.
Hassan Rouhani first took office as Iran's president in the fiscal 2013-14. He was reelected for a second four-year term in the fiscal 2017-18.
The PBO report also shows the share of tax revenues from general budget resources increased from 33% in the fiscal 2013-14 to 36% in the fiscal 2018-19, indicating a 9.1% growth.
PBO noted that the increase in tax revenues has come in line with a decrease in the share of oil in government budget.
The share of tax revenues from government spending grew 7.8% from 42% in the year Rouhani took office to 45.3% last year (March 2018-19).
Modernization of Taxation System
According to Parsa, INTA is moving to modernize Iran's taxation system based on verifiable information about the status of taxpayers.
"How can we provide for social expenses, including keeping order and security, education, healthcare and the myriad infrastructural projects across the country?" he was quoted as saying recently.
"There are basically two ways for this. Either we levy taxes proportionate to incomes and consumptions, which is in line with social justice. The other way being printing money, which results in inflation, which is in turn a type of tax whose pressure is felt by low and middle class strata of the society, the retired and the less fortunate citizens," he was quoted as saying by IRNA.
He stressed that the need to reform and modernize Iran's taxation system is now more urgent than ever, as US unilateral sanctions have targeted the country's export revenues.
Echoing a similar line, Economy Minister Farhad Dejpasand said the current circumstances under economic sanctions offer a blessing in disguise for Iran to improve its taxation system.
"In advanced countries, 25% of people’s total income go toward taxes. This rate stands at 8.5% in Iran," Parsa said, adding that should Iran seek to follow the example of developed countries in terms of a just taxation system, INTA needs to have all-out access to financial turnovers, property deals and assets.
Expanding the tax base, fighting tax evasion and improving transparency in taxation process are missions set for the chief taxman by President Hassan Rouhani.
INTA to Enforce Green Tax
Tax will be levied on products that cause environmental damage in their manufacture or use, Mohammad Masihi, an official with the Iranian National Tax Administration, said recently.
As per the budget law of the current fiscal year (March 2019-20), he explained, a 2% tax will be imposed on domestically manufactured paint, coating, primer, tires, tubes, plastic and electronic toys, plastic containers, polyethylene terephthalate (PET) and melamine.
Imports of the above-mentioned products will be subject to a 3% tax.
“Locally-produced light bulbs, except for SMD/LED, will be subject to a 3% tax, while a 4% tax will be charged for their imported counterparts," he was quoted as saying by IRNA.
“A 3% tax will be imposed on domestically manufactured computers, audio visual equipment and cellphones, as well as linoleum, cellophane and nylon. Importers of these products will be required to pay a 4% tax."
Environmental tax, also known as green tax, pollution tax or eco-tax, refers to a wide range of legislative charges on businesses and private individuals, aimed at reducing practices that cause damage to the environment. There are many forms of environmental tax, some of which are aimed at penalizing those who emit harmful chemicals and some of which are aimed at rewarding those who employ environmentally-friendly practices.
Green taxes give legislators and policymakers a powerful instrument for environmental protection that supplements regulatory strategies. While regulatory mechanisms are used by government to lessen environmental damage by restricting or banning certain products and activities, green taxes seek to achieve the same goals through economic incentives.
The popularity of this approach to environmental problems has led many European nations to enact green taxes in recent reforms of their tax systems.
For Iran, though, besides the environmental issue, the move could come in really handy as the government is looking to wean off petrodollars at a time of "toughest ever" US sanctions against Iran's oil sales.
In fact, ever since the reintroduction of sanctions, increasing tax revenues has been brought up as a key measure to boost finances in the Islamic Republic.