INTA Against Replacing VAT With Consumption Tax

EghtesadOnline: Chairman of Iranian National Tax Administration Seyyed Kamel Taqavinejad believes scuttling the value added tax and replacing it with consumption tax, as proposed by Majlis Joint Commission recently as part of the budget bill for the upcoming Iranian year (March 2017-18), would be a step backward for Iran’s taxation and fiscal systems.

News ID: ۷۷۴۳۷۹

05 March 2017

“The move will reduce close to 400 trillion rials ($10.58 billion) in revenues,” he said.

VAT is a general consumption tax collected incrementally, based on the value added, at each stage of production or distribution, whereas the parliament’s newly-proposed consumption tax narrows the tax base to the final consumer.

Noting that VAT accounts for over 50% of INTA’s tax revenues, the official said consumer tax has replaced VAT in countries where the latter’s implementation has failed, Financial Tribune reported.

“This is while the experience of VAT in Iran has been successful,” IRNA quoted him as saying.

Proponents of the initiative believe the mechanism of consumption tax system is simpler and more effective compared to VAT. They also argue that it will help improve transparency and prevent corruption.

Two main violations are usually reported when it comes to the implementation of the VAT Law. First, some business owners charge their customers VAT but do not pay the same to the government.

Second, the government collects the VAT but avoids paying the revenues to related bodies. To prevent such violations, only the final consumer—the last point in a distribution chain—must be charged consumption tax, according to a report recently published by the Persian daily Shahrvand.

The VAT Law took effect in the Iranian year to March 2009 and has since taken a lot of flak for its ambiguities. It currently stands at 9%.

Minister of Economic Affairs and Finance Ali Tayyebnia said as many as 500,000 taxpayers, including major producers and importers, pay around 150 trillion rials ($3.96 billion) in value added tax every year.

“Once the consumption tax becomes law, tax authorities will have to deal with over 3 million retailers across the country,” he added.