Iran Tax Administration Moves to Modernize Iran's Taxation System

EghtesadOnline: Iran's National Tax Administration is moving to modernize the country's taxation system by using verifiable information about the status of taxpayers.

News ID: ۷۸۴۷۵۸

14 July 2019

This is what the new INTA chief, Omid Ali Parsa, has set out as the main policy of the administration under his watch.

"How can we provide for social expenses, including for law and order, education, healthcare and the myriad infrastructural projects across the country?" Parsa asked in a speech made ahead of Friday prayers in Tehran, IRNA reported.

"There are basically two ways for this. By levying taxes proportionate to incomes and consumptions, which is in line with social justice. The other way is by printing money that gives rise to inflation, which is in turn a type of tax whose pressure is felt by low and middle class strata of the society, the retired and less fortunate citizens," Financial Tribune quoted him as saying.

Parsa stressed 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, Minister of Economic Affairs and Finance Farhad Dejpasand recently said the current circumstances under economic sanctions offer 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 expenditures, while accounting for as little as 37% of the budget.

"In advanced countries, 25% of people’s total income go to taxes. This rate stands at 8.5% in Iran," he said, adding that if Iran intends to follow the example of developed countries in terms of a just taxation system, INTA needs to have full access to financial turnovers, property deals and assets.

Expanding the tax base, fighting tax evasion and improving transparency in taxation process are missions set for the new chief taxman by President Hassan Rouhani.

According to the new taxman, tax evasion in Iran stands at 300-350 trillion rials ($2.34-2.73 billion).

The Economy Ministry estimates that tax evasion and avoidance in Iran stands at 35% of total tax revenues of the government.

INTA is setting up a specialized court that hears only tax cases in Tehran.

Value added tax accounts for the lion’s share of total tax revenues in Iran with 23.5%, as per the INTA figures, followed by corporate and import taxes. 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 points compared to 2018.

Using a case scenario, the Doing Business report measures the taxes and mandatory contributions that a medium-sized company must pay in a given year as well as the administrative burden of paying taxes and contributions.

According to 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 tax payment 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.

The Iranian government earned 1,090 trillion rials ($7.26 billion) in tax revenues during the last fiscal year that ended March 20, 2019.

The earnings had been estimated to stand at 1,130 trillion rials ($8.52 billion) as per the fiscal 2018-19 budget law, 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 billion), registering an increase of 15% compared with the year before.

Earnings from tax on goods and services hit 450 trillion rials ($3.52 billion), indicating an 11% year-on-year growth, ILNA quoted the INTA chief as saying.

Minister of Economic Affairs and Finance Farhad Dejpasand recently said the government earned more than 240 trillion rials ($1.87 billion) in tax revenues during the first quarter of the current Iranian year (started March 21), indicating a 28% rise compared with the corresponding period of last year.

A total of 1,400 trillion rials ($10.95 billion) have been projected in tax revenues this year (March 2019-20).