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EghtesadOnline: The budget bill of fiscal 2021-22 has projected an export of 650,000 barrels per day of crude oil, the deputy head of Plan and Budget Organization said on Monday.

“The projection for Iranian oil price is at $40 in next year’s budget,” Seyyed Hamid Pourmohammadi was also quoted as saying by IRIB News. 

“A 25% rise in the salaries of government workers and pensioners has also been included in next year's budget bill that will be submitted to the parliament on Dec. 2,” he added. 

Referring to the budget’s structural reforms recommended by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei to the heads of three branches of the government, Pourmohammadi said, “PBO has submitted a draft of structural reforms and their timelines to the heads of the three branches and the parliament is working on the plan.” 

“The Majlis Plan and Budget Commission has tasked a committee with reforming the structure of budget for the first time,” Mohsen Zanganeh, a member of the parliament, said. 

The Plan and Budget Organization held the first meeting of the so-called Budget Headquarters 1400 (the Iranian year starting March 2021) in August.

Following the freefall in oil prices and the spread of the new coronavirus, the government is getting more and more worked up every year, especially in view of the fiscal burden of sanctions and the decline in oil sales. 

In the fiscal 2019-20, the relatively smaller size of the budget deficit, the availability of foreign exchange reserves from the National Development Fund of Iran and the untapped potential of debt bonds prevented the after-effects of the deficit to be strongly felt in the economy. 

In the current fiscal year (March 2020-21), the projected 1,500 trillion rials ($5.67 billion) in budget deficit, the 960-trillion-rial ($3.62 billion) budget reliance on financial bonds, the drastic fall in oil prices, petroleum production and tax revenues, and the mounting cost of coronavirus outbreak is bound to compound the government’s economic woes. 

Masoud Khansari, the head of Tehran Chamber of Commerce, Industries, Mines and Agriculture, says the government is in the red to the tune of 1,800-2,000 trillion rials ($6.8-7.5 billion). He said the deficits have been partly compensated by the bond market.   

 

 

Growth in Bond Sale

Data released by the Central Bank of Iran indicate that bonds worth a total of 1,021.5 trillion rials ($3.8 billion) were sold during the first six months of the current fiscal year. 

Bond sale grew more than 310% during the period on an annualized basis. Most of the bonds were offered by the government, with non-governmental bodies getting a paltry share. 

The government sold Islamic bonds worth 888.4 trillion rials ($3.2b) in H1, accounting for more than 86% of the total bonds sold. Sales also recorded a staggering growth in the period rising 466.8% compared to the corresponding period of last fiscal year. 

As per CBI data, the government sold treasury bills worth 170 trillion rials ($620 million) in the period, indicating a 33.1% rise year-on-year. Murabaha sukuk was also sold. 

Regarding the share of non-government companies, they sold corporate bonds worth 84 trillion rials ($310 million) during the first six months of the current fiscal year, up 315.4% annually.   

Municipalities of big cities sold participatory bonds worth 49.1 trillion rials ($181m) in H1, which unlike the government and corporate bonds, was down 31.7% in H1 compared with the same period of last year. 

The bonds were issued by municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Tabriz, Karaj and Shiraz to fund urban development projects, such as financing rail networks, expanding pathways, rehabilitating urban structure and developing Bus Rapid Transit networks. 

The government’s effort to raise funds for the deepening budget deficits through the debt market is the main reason behind the surge in bond offers. 

It generated funds mainly through Murabaha bonds, sold largely during weekly bond auctions held by CBI. The auctions were held on Tuesdays since May while CBI, on behalf of the government, sold bonds to banks, investment funds and retail investors in the bourse. 

Chronic budget deficits due to the United States sanctions, which hit the economy hard, particularly oil export, are a major concern for the Rouhani administration. With US penalties taking a toll on the key oil sector, the government is under pressure to find ways of compensating revenue from diminishing oil exports. 

The government plans to continue its debt sale throughout the fiscal year. According to Mehdi Banani, the head of Debt Management Department of Economy Ministry, there are plans to sell at least another 620 trillion rials ($2.2b) before the current fiscal year is out in March. 

The administration of President Hassan Rouhani has given the go-ahead to the High Council of Economic Coordination to sell the huge volume of bonds. The policy council comprises heads of the three branches of government to address macroeconomic issues.

While the government is in dire need of funds, its bond auctions have failed to attract many buyers in the past several weeks. 

 

 

Taxation

Taxation is another means through which the government hopes to plug its budget deficit. However, due to economic problems and the devastating impact of the coronavirus pandemic, the government’s success in raising taxes is apparently limited, as businesses are already hit hard and many have shuttered. 

Tax rates will increase by 28% on average in the current fiscal year (March 2019-20), the head of Iran's National Tax Administration, Omid Ali Parsa, said recently.

"In underprivileged provinces, the rate will be lower. For instance, Lorestan and Ilam will see 15% growth. However, taxes in Tehran will rise by 32%," he was quoted as saying by IRNA on Thursday in a meeting with business owners in the southern Kerman Province.

"The taxation system is moving toward imposing heaviest rates on higher income deciles while minimizing levels for those with modest means," he added. 

Parsa said INTA earns 120 trillion rials ($453 million) in tax revenues (direct and indirect) on a monthly basis.

“This is while the government's general spending is at 280 trillion rials [$1 billion] per month,” he said.

"About 8% of the Iranians' income are put at the disposal of the government [in the form of tax]. The global average is at 30%. At a time when oil revenues have declined, the government has no choice but to count on tax revenues."

Experts say the reason for this disproportionate share of tax revenues in the country’s GDP is that some 50% of the Iranian economy enjoy tax exemption. This is to be topped by rampant tax evasion and faulty taxing methods.

According to Parsa, 40% of Iran’s economic players are exempt from paying taxes.

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, has put tax evasion at 400,000 billion rials ($1.5 billion) annually.

He has been quoted as saying that the value of tax exemption and tax evasion together is more than 1,000 trillion rials ($3.7 billion).

Independent observers put the figure at much higher rates.

According to Parsa, the share of tax revenues in budget increased from 37% in the fiscal 2018-19 to 54% in thelast fiscal year, Mehr News Agency reported.  

“The average growth in tax revenues over the past five years was 21%.” 

INTA is also considering taxation on empty homes, luxury homes and pricy cars.

The government earned 852.23 trillion rials ($3 billion) in tax revenues over the first half of the current fiscal year (March 20-Sept. 21), according to the Iranian National Tax Administration. 

The government’s tax revenues consist of its returns from “direct taxation” and “tax on goods and services”. Direct taxes include three groups of “tax on legal entities”, “income tax” and “wealth tax”.

Overall earnings from direct tax stood at 549.55 trillion rials ($1.99 billion), of which tax on legal entities earned 227.49 trillion rials ($827.23 million), 

Revenues gained from income tax reached 192.65 trillion rials ($700.54 million) and wealth tax revenues topped 129.4 trillion rials ($470.54 million). 

Tax on goods and services generated 302.68 trillion rials ($1.1 billion). H1 earnings from value added tax stood at 228.17 trillion rials ($829.7 million) while revenues from cigarette consumption tax and departure tax, which are other sub-categories of tax on goods and services, hovered around 9.81 trillion rials ($35.67 million) and 326.73 billion rials ($1.18 million) respectively in the six-month period.

The budgetary goal on tax revenues for the current year is set at 1,950 trillion rials ($7.09 billion). The government’s overall tax revenues stood at 1,090 trillion rials ($3.96 billion) in the year ending March 2019 and 1,410 trillion rials ($5.12 billion) in the year ending March 2020.

The share of tax revenues in the government’s public budget increased from 35.1% in the year ending March 2019 to 37.5% in the year ending March 2020, and tax revenues to current expenditure ratio improved from 2.45% in the year ending March 2019 to 8.47% in the last fiscal year (ended March 20), according to a report by the Public Relations Office of the Ministry of Economic Affairs and Finance on policies, operational plans and achievements of INTA over the past year.

Budgetary goals for tax revenues increased by 29% in the last fiscal year (March 2019-20) compared with the year before to reach 1,411 trillion rials ($5.23 billion), ILNA reported citing the ministry’s report. 

By July 20, the government earned 86% of the projected tax revenues compared with the same period of last year. A total of 278,626 billion rials ($1 billion) in value added tax were paid to municipalities and rural administrator’s offices across the country from August 23, 2019, to July 21, 2020.  

Transition from the traditional to smart taxation system was INTA’s main strategy in the last fiscal year to develop the country’s taxation system, finance the government’s public budget and reduce reliance on oil revenues and other inflationary methods the government might resort to for putting the budget in order, as well as improving tax equity, fighting tax evasion and increasing administrative efficiency and taxpayers’ satisfaction.

 

Budget oil export