Tax on Stock Trade to Decline 40% in 2022-23 Fiscal Budget

EghtesadOnline: The government’s projected income from tax on stock trade has declined by a massive 40% in the 2022-23 draft budget.

News ID: ۷۸۷۴۵۵

20 December 2021

It expects to earn 104.2 trillion rials ($360 million) from tax on stock trade next year that begins in March. This amount was 171.2 trillion rials ($590m) in the budget for this year.

Known as financial transaction tax (FTT), tax on stock is levied on buying and selling shares, bonds or other financial contracts like options and derivatives.

The government’s tax revenue consists of returns on direct taxation and tax on goods and services. Direct taxes are collected from three sources: legal entities, income tax and wealth tax. Tax on stock trade falls under the wealth tax category.

Tax revenue from stock market activities is different from capital gains tax that is commonly levied on share profit. The government has often denied the likelihood of levying capital gains tax on share profit.

As per rules, tax on stocks is 0.5% of the total value of the trade. Given the ongoing crisis in the share market, the tax rate is not expected to increase next simply because it would harm investment in shares and exacerbate the already bearish trend.

The decline in projected income from stock trade next year reflects the crisis that has dominated the bourse almost a year and a half.  Tax on share trade would understandably decline if trade is in distress and when the number of stock market traders diminishes.

Data by the Central Securities Depository of Iran show  government income from tax on share exchanges in the first half of the present fiscal year (March 21-Sep.21) amounted to 33.75 trillion rials ($117 million) -- a third of the earnings on the corresponding period last fiscal year.

Steep decline in the government tax income from the share market is linked to investor aversion to pour money in the unstable market following its historic collapse in summer 2020.

Data released by the Securities and Exchange Organization has it that stock market trade declined both in value and volume in the reviewed period.

Number of traded shares dropped from 1.423 trillion in the first six months of the previous fiscal year to 1.029 trillion shares in H1 this year down 15% annually.

Value of trade plunged 63% in the period to 7,048 trillion rials ($24.3b) in H1 compared with 19,542 trillion rials ($67.3b) in the same period last year.

The government generated 179.89 trillion ($620m) in tax on stock trade in the previous fiscal year (March 2020-21), up a whopping 445% compared to 33 trillion rials ($113m) a year earlier.

Steep rise in revenue from tax on stock trade last year whetted the appetite of the government to raise forecast for the current year.