New Budget Bill Expects $17.5 Billion in Tax Revenues

The target is part of the budget bill submitted by President Ebrahim Raisi to the parliament on Dec. 12.

For the first time, the budget counts on taxing all owners of cars valued over 10 billion rials ($33,333) as well as owners of houses worth more than 100 billion rials ($333,333).

The National Iranian Tax Administration earned 1,980 trillion rials ($6.6 billion) from taxation during the first eight months of the current fiscal year (March 21-Nov. 21), the head of the organization, Davoud Manzour, said recently.

The revenues show a 50% rise compared with last year’s similar period during which INTA earned 1,314 trillion rials ($4.38 billion at the current exchange rate).

Considerable as the rise seems, the economy is experiencing hyper-inflation rates of above 40%.

Notably, taxation of economic enterprises declined significantly in the fiscal 2020-21 due to the imposition of Covid-19 restrictions and repeated shutdowns.

Ahmad Ghaffarzadeh, advisor to Majlis Research Center (the research arm of the Iranian Parliament), says, “most optimistic estimates put the volume of tax evasion in Iran at 1,000 trillion rials [$3.3 billion] per fiscal year,” implying that the volume could be much higher.

He added that the tax-to-GDP ratio in Iran currently stands near 7%, ILNA reported.

This is while neighboring economies register up to 12-17% in tax-to-GDP ratio and 30-35% in developing countries, suggesting that Iran’s economy needs to achieve a 50% surge in this ratio to reach the average rate of tax-to-GDP among neighboring countries. Such an increase will materialize by setting new tax bases in the coming years.

Therefore, the only way to achieve this goal under the current sanctions regime is by reducing tax exemptions of special institutions, whose former directors now hold posts in the new government, and preventing tax evasion, according to the Persian daily Etemad.

Official statistics show that of the 1,390 trillion rials ($4.63 billion) in tax income during the first half of the current year (March 21-June 21), 870 trillion rials ($2.9 billion) were gained from direct tax and the rest came from tax on goods and services.

As in the past years, income from direct tax accounted for the lion’s share of tax revenues. The quarterly trend in tax revenues since Q1 of fiscal 2019-20 to Q2 of fiscal 2021-22 shows many ebbs and flows: Q1 of fiscal 2019-20 registered the lowest gains from taxation while Q2 of the current fiscal year (2021-22) posted the highest tax revenues.

Except for Q2 of 2020-21, which registered a 13.5% decrease in tax income compared with the preceding quarter, all other months saw a positive shift (but not necessarily an increase in tax revenues) compared with their previous months.

However, fluctuations in the ratio of tax to the government’s overall revenues and to GDP remained uninspiring; they can fan the flames of instabilities while tax revenues remain unpredictable. When a projected income does not materialize, the government will be forced to address the deficit by opting for other options.

The shares of direct tax and tax on goods and services in total tax revenues stood at 62.8% and 37.1% in H1. Of the direct tax income, 33.1% came from tax on real entities, 25.1% from income tax and 4.6% from inheritance tax. The share of direct tax decreased while the share of tax on goods and services increased in H1 due the fact that almost all economic activities faced restrictions during the first half of last fiscal year (March 2020-21) and consequently witnessed a decline in income. Despite a number of peaks in Covid-19 cases in the early months of the current year, tax revenues increased, which shows that the current year’s tax income is bound to exceed last year’s (2,070 trillion rials or $6.9 billion at the current exchange rate).

Tax-to-GDP ratio has positive correlations with the country’s economic dynamism. Notably, tax revenues are the best way for tackling the budget deficit resulting from the fall in oil revenues. The method and level of taxation are different in other countries.

For years, Iran has been wrestling with challenges, including tax evasion of high-income groups like doctors and lawyers.

The low ratio of tax to GDP in Iran is alarming because it is one of the main indicators of economic development. It reflects the real production by an economy and also shows the level of accountability of officials to the public.

Experts have time and again demanded a reduction in tax exemption of special institutions. According to a report by ILNA, special institutions held 10% of the country’s economy in the month ending Dec. 21, 2019, but their share in tax revenues was paltry.