Iran Tax-to-GDP Ratio at 4.2%

EghtesadOnline: The ratio of tax revenues government gained in the last fiscal year (March 2019-20) to GDP (when current prices are used) stood at 4.2%.

News ID: ۷۵۱۷۳۵

27 December 2020

A total of 1,410 trillion rials ($5.52 billion) were gained from taxes last year, of which 820 trillion rials ($3.21 billion) came from direct taxes and 590 trillion rials ($2.31 billion) from tax on goods and services.

The ratio of tax revenues to operating budget stood at 41.4% and to general expenditure at 32.7%, Fars News Agency reported.

According to the Sixth Five-Year Development Plan (2017-22), the ratio of tax revenues to GDP is targeted to reach 8-10%.

Noting that the tax-to-GDP ratio in Turkey is at 24%, the US 30%, Germany about 50% and in OECD countries at 35%, Hossein Abbasi, a lecturer in the Department of Economics of University of Maryland, said the relatively low rate indicates that a big part of the Iranian economy does not pay tax.

“Provided that the taxation system undergoes a reform, the economy can tap into the modern financing system quite easily. Notably, tax reform does not necessarily require raising tax, rather it means ensuring taxing those who fail to pay their fair share,” he told the Persian economic weekly Tejarat-e Farda.

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.

The announcement was made on the occasion of "Government Week" in Iran (from Aug. 24-30).

Hassan Rouhani first took office as Iran's president in the fiscal 2013-14 and 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, IRNA reported.

PBO noted that the rise in tax revenues has come in line with a decline in the share of oil in government budget.

The share of tax revenues in government spending grew by 7.8% from 42% in the year Rouhani took office to 45.3% last year (March 2018-19).

The ratio of tax revenues to public budget resources increased from 35.1% in the year ending March 2019 to 37.5% in the year ending March 2020 and that of tax revenues to current expenditure 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 Ministry of Economic Affairs and Finance on policies, operational plans and achievements of the Iranian National Taxation Administration in the last fiscal year.

Budgetary goals on tax revenues were realized by 102% and tax income increased by 29% in the last fiscal year (March 2019-20) compared with the year before to reach 1,411 trillion rials ($5.42 billion), ILNA cited the ministry’s report as saying.

Tax Revenues Exceed $5b in 8 Months

Latest data show the government earned upwards of 1,314 trillion rials ($5.05 billion) in tax revenues in the eight months to Nov. 20, which account for 64% of the sum predicted in the budget for the period.

The government’s tax revenues consist of its returns from tax on legal entities, income tax, wealth tax, tax on imports and tax on goods and services.

Taxes paid by companies and legal entities stood at 347.53 trillion rials ($1.33 billion), which accounts for 78% of the sum projected in the budget for the period under review.

The Iranian National Tax Administration earned 257.75 trillion rials ($991.34 million) from taxing civil servants and workers (income tax), which is 74% of the budget’s projected figure.

Wealth tax revenues stood at 157.68 trillion rials ($606.46 million) over the period, indicating a 186% realization rate. Wealth tax recorded the highest growth over the period, which included taxing stock trade.

Tax on imports earned the government 95 trillion rials ($365.38 million). The earnings from tax on imports are 39% of the projected budgetary requirements. The small realization rate is due to the decline in imports over the period.

And finally, tax on goods and services, which also includes value added tax earnings, hovered around 455.96 trillion rials ($1.75 billion) and constituted 49% of the projected figure in the eight-month budget.

Next Budget Bill Estimates $9.6b in Tax Revenues

Total tax earnings as per the fiscal 2021-22 budget bill have been set at 2,515 trillion rials ($9.67 billion), including 591 trillion rials ($2.27 billion) from tax on legal entities, 491 trillion rials ($1.88 billion) from income tax, 238 trillion rials ($915 million) from wealth tax, 235 trillion rials ($903 million) from tax on imports and 957 trillion rials ($3.68 billion) from tax on goods and services.

Vice President for Parliamentary Affairs Hosseinali Amiri submitted the budget bill for the next fiscal year (March 2021-22) to the parliament last week.

In the next fiscal year (starting March 21, 2021), the operating budget (including revenues derived mainly from taxation and exports at the disposal of the government) has been projected to stand at 8,413 trillion rials ($32.35 billion at the market exchange rate of 260,000 rials per US dollar).

Add to this, revenues earmarked for ministries and governmental institutions worth 884 trillion rials ($3.4 billion) take the total sum of the general budget to 9,298 trillion rials ($35.76 billion).

The budget of state companies, banks and for-profit organizations has been put at 15,619 trillion rials ($60 billion).

All in all, the ceiling set for the government’s total budget is at 24,357 trillion rials ($93.68 billion).

INTA’s Reforms

Iran’s National Taxation Administration pursued a variety of reforms in rules and regulations, and sought to provide infrastructures needed to modernize the taxation system.

Tax incentives were introduced for new companies willing to list on the stock market in the current fiscal year (March 2020-21). The proposal was floated by the Economy Ministry at the High Council of Economic Coordination, an ad hoc economic decision-making body comprising heads of three branches of power, and approved therein.

INTA will grant tax waivers to companies wanting to go public. Potential listed companies will be accountable only for tax liabilities in the previous fiscal year (March 2019-20) and INTA will not delve into prior tax records.

INTA made starting a business easier by removing 15 requirements and unnecessary regulations, and consequently accelerated starting business procedures by 53 days.

The Iranian Deeds and Properties Registration Organization was tasked with electronically putting at INTA’s disposal all the information it needs to issue tax file numbers, also known as Economic Code in Iran, for real entities. Prior to this new measure, there were 45 stages to register for tax file numbers, of which 44 could be completed in less than half an hour but the last stage, the authentication process, would take days and consequently hurt ease of doing business.

In addition, business entities don’t need to secure the value added tax registration permit.

Putting together the bill on Direct Tax Code Overhaul and sending it to the government for approval in the month ending Feb. 19, 2020, was another significant measure taken by INTA in the last fiscal year. The bill includes new types of taxes, namely the individual income tax or personal income tax levied on wages, dividends, interest and other sources of income a person earns throughout the year, capital gains tax for residential property, housing vacancy tax, tax on luxury cars, etc. Amendments on tax exemptions and incentives have also been envisioned in the proposal.

Taking measures regarding business owners' transactions processed through point-of-sale devices to improve transparency, drafting the roadmap toward modernizing the taxation system, including completing E-Tax and designing I-Tax systems, offering electronic services for tax return filing, tax statements, registration of taxpayers and their electronic payments through smartphones, as well as reducing in-person communication between taxpayers and tax officers were other actions taken by INTA last year.

Outsourcing the execution of property transfer tax to notary public offices and the delegation of authority to allow tax forgiveness, payment of tax liabilities in installments and value added tax law to directors general of tax offices across the country to boost production, treat clients with respect and promote decentralization were among significant measures undertaken by the tax administration over the last fiscal year.