Reports about tax on bank deposits and income of shareholders have been making the rounds for sometime spurred by speculations that the government wants to expand the tax bases to generate new sources of income to substitute the huge decline in the sanction-hit oil revenues, Financial Tribune reported.
Speculations gave rise to new concerns that the tax would push capital market investors out of the market and, in turn, shift huge amounts of liquidity into parallel markets, causing turbulence in the gold, foreign currency, auto and housing market – as seen in the past.
Stressing that capital gain tax on shares is no longer on the agenda, Omid Ali Parsa said INTA is also not “looking to tax bank deposits because it will do more harm than good.”
Parsa referred to a direct tax bill that is currently being reviewed by the government, saying the new tax rules “target taxpayers’ income in its entirety.”
The tax bill will cover capital gain tax, luxury homes and expensive cars and involve revision of tax exemptions that have been strongly criticized by economic experts.
Observers worry that taxing bank deposit income would push people to take out their savings from banks that by extension would give rise to more inflation.
Although taxing bank deposits is common in many countries, there are fears that such a move in Iran would worsen the already galloping inflation by pushing depositors to withdraw money from banks and move to other safe havens.
Interest on bank deposits is much lower than the inflation rate that currently hovers near 40%. “The returns on money parked in banks are negative. If tax is added to it the negative returns will get bigger,” Kamran Nadri, a bank expert said.
In the same vein, Gholamreza Tajgardoon, a lawmaker told state TV earlier that “If we want to tax bank deposits when inflation is 40% and interest rates on bank deposits between 15-18%, the banking system would simply run out of money.”
Discarding the possibility to levy capital gains tax on share exchanges is apparently based on a similar premise: fears that investors may withdraw their capital from stock market and invest it in other markets.
Capital gain tax is assessed on the positive difference between the selling price of the asset and its original purchase price. The purpose for imposing such taxes is to restrict capital gain in unproductive markets. Governments normally go for policies to inject capital into productive sectors.
Iran’s stock market officials often claim that the capital market has always been the venue through which liquidity is directed to productive sectors.
A capital market official put the amount of liquidity injected into the domestic stock market in nine months since the beginning of current fiscal year (March-December, 2019) at 1,290 trillion rials ($9.5 billion).