Iran to Enforce Green Tax

EghtesadOnline: Tax will be levied on products that cause environmental damage in their manufacture or use, an official with the Iranian National Tax Administration said.

News ID: ۷۴۸۱۷۲

14 August 2019

As per the budget law of the current fiscal year (March 2019-20), Mohammad Masihi added that a 2% tax will be imposed on domestically manufactured paint, coating, primer, tires, tubes, plastic and electronic toys, plastic containers, polyethylene terephthalate and melamine.

Imports of the above-mentioned products will be subject to a 3% tax, IRNA reported.

“Locally-produced light bulbs, except for SMD/LED, will be subject to a 3% tax, while a 4% tax will be levied on their imported counterparts," Financial Tribune quoted him as saying.

“A 3% tax will be levied on domestically manufactured computers, audiovisual 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 harm the environment.

There are many forms of environmental tax, some of which are aimed at penalizing those who emit harmful chemicals in the air and some of which reward those who employ environmentally-friendly practices.

Green taxes give legislators and policymakers a powerful tool for environmental protection that supplements existing regulatory strategies. While regulatory mechanisms are used by the government to lessen environmental damage by restricting or banning certain products and activities, green taxes seek to achieve the same goals by awarding economic incentives.

The popularity of this approach to environmental problems has led many European nations to enact green taxes in recent reforms.

Secondary Motive

Besides the green tax, the move to increase tax revenues could come in handy, as the government intends to wean the economy off petrodollars at a time of tough US sanctions reimposed on Iran's oil sales.

In fact, ever since the reintroduction of sanctions, increasing tax revenues have been brought up as a key measure to boost finances in the Islamic Republic.

Omid Ali Parsa, the head of Iran's National Tax Administration, recently said INTA intends to modernize the country's taxation system based on verifiable information about the status of taxpayers.

"How can we meet the social expenses, such as keeping order and security, education, healthcare and the myriad infrastructural projects across the country?" Parsa asked in a speech made ahead of Friday prayers in Tehran.

"There are basically two ways of doing 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 the low and middle class strata of the society, the retired and the less fortunate citizens."

The INTA chief noted 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 recently said the current circumstances under economic sanctions are a blessing in disguise for Iran to improve its taxation system.

According to Parsa, tax revenues in Iran make up less than 50% of current expenses, while accounting for as little as 37% of the budget.

"In advanced countries, 25% of people’s total income go toward taxes. This rate stands at 8.5% in Iran," he said.

“If Iran seeks to follow the example of developed countries for having a just taxation system, INTA needs to have all-out access to information concerning financial turnovers, property deals and assets.”

In fact, expanding the tax base, fighting tax evasion and improving transparency of taxation process are missions set for the newly appointed chief taxman by President Hassan Rouhani.

According to Parsa, tax evasion in Iran stands at 300-350 trillion rials ($2.5-3 billion).

The Ministry of Economic Affairs and Finance estimates that tax evasion and avoidance in Iran stand at 35% of total tax revenues.

INTA is setting up a specialized court to only hear tax cases in Tehran.

Value added tax accounts for the lion’s share of total tax revenues in Iran at 23.5%, as per INTA figures, 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.

According to the World Bank's latest Ease of Doing Business Report 2019, Iran's score in "paying taxes" was 56.78, registering an improvement of 4.17 percentage point compared to 2018.

According to The World Bank, on average, firms in Iran make 20 tax payments a year, spend 216 hours a year filing, preparing and paying taxes and pay total taxes amounting to 44.7% of their profit, placing the country in the 149th global ranking among 190 nations.

The World Bank says Iran made paying taxes easier by introducing an online system for filing social security contributions, allowing the possibility of filing value added tax refund claims online, amending corporate income tax returns online and making payment of additional tax liability at the bank.

$9.3b in Tax Revenues Last Year

The Iranian government earned 1,090 trillion rials ($9.3 billion) in tax revenues during the last fiscal year (ended March 20, 2019).

The earnings had been estimated to stand at 1,130 trillion rials ($9.65 billion) as per the fiscal 2018-19 budget, suggesting that 97% of the target were met.

Direct tax revenues, including “tax on legal entities”, “income tax” and “wealth tax”, stood at 640 trillion rials ($5.47 billion), registering an increase of 15% compared with the year before.

Earnings from tax on goods and services hit 450 trillion rials ($3.84 billion), indicating an 11% year-on-year growth.

Dejpasand recently said the government earned more than 240 trillion rials ($2.05 billion) in tax revenues during the first quarter of the current Iranian year, indicating a 28% rise compared with the corresponding period of last year.

A total of 1,400 trillion rials ($11.96 billion) have been projected in tax revenues this year (March 2019-20).