The government’s tax revenues consist of its returns from direct and indirect taxation. Direct taxes include three groups of “tax on legal entities”, “income tax” and “wealth tax”, and indirect taxes consist of “tax on imports” and “tax on goods and services”.
Overall earnings from direct tax stood at 418 trillion rials ($1 billion): Tax on legal entities earned 123 trillion rials ($418 million) to register a 120.6% year-on-year growth, the Persian-language daily Donya-e-Eqtesad reported, citing new data released by the Statistical Center of Iran.
Revenues gained from income tax saw a year-on-year rise of 103% in Q1 to reach 125 trillion rials ($425 million).
Wealth tax recorded the highest growth among all types of taxes compared with last year’s similar period: A total of 70 trillion rials ($238 million) were generated from wealth tax, showing a 446% increase over the first quarter of last fiscal year.
All in all, Q1 earnings from direct tax increased by 144.5% YOY.
Tax on goods and services increased by 72.5% from 113 trillion rials ($384 million) of last year’s Q1 to 194 trillion rials ($660 million) this year.
No specific data were available on import tax or total indirect tax.
The budgetary goal on tax revenues for the current fiscal year has been set at 1,950 trillion rials ($6.63 billion).
Last Fiscal Year in Review
The government’s overall tax revenues stood at 1,090 trillion rials ($3.7 billion) in the year ending March 2019 and 1,410 rials ($4.8 billion) in the year ending March 2020.
Tax revenues in the government’s public budget resources increased from 35.1% in the year ending March 2019 to 37.5% in the year ending March 2020 and tax revenues to current expenditure ratio improved from 2.45% in the year ending March 2019 to 8.47% in the last fiscal year (ended March 20).
This was stated in a report by Public Relations Office of the Economy Ministry on policies, operational plans and achievements of the Iranian National Taxation Administration over the past year.
About 102% of budgetary goals related to tax revenues were realized and tax income increased by 29% in the last fiscal year (March 2019-20) compared with the year before, ILNA reported, citing the ministry’s report.
Transition from electronic to smart taxation system was INTA’s main strategy in the last fiscal year to develop the country’s taxation system, finance the government’s public budget, reduce reliance on oil revenues and combat inflation to put the budget in order.
Other strategies included improving tax equity, fighting tax evasion and increasing administrative efficiency and taxpayers’ satisfaction.
The Iranian National Taxation Administration pursued a variety of reforms in rules and regulations, and sought to establish the infrastructure needed to modernize the taxation system.
Tax Incentives
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.
Starting a business was made easier by removing 15 requirements and unnecessary regulations, and accelerating 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 no longer 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 tax, namely the individual income tax or personal income tax that is levied on wages, dividends, interest and other sources of income a person earns throughout the year, capital gains tax for residential property, vacancy tax, tax on luxury cars, etc. Amendments on tax exemptions and incentives have been envisioned in the proposal, as well.
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 submission of tax returns and statements, registration of taxpayers and their electronic payments through smartphones and reduction of 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, delegation of the authority to carry out tax forgiveness, determining payment of tax liabilities in installments and value added tax law to directors general of tax affairs across the country to shore up production, treat clients with respect and promote decentralization were among significant measures undertaken by the tax administration last year.
INTA signed memorandums of understanding with over 100 executive agencies to complete a database on taxpayers’ information, their performance and properties by tapping into the data of these agencies. In its fight against tax evasion and fraud, the administration scrutinized suspicious banking information of 14,542 taxpayers last year, which led to issuing tax statements worth 317,480 billion rials ($1 billion) for them.
The execution of value added tax was simplified for taxpayers in a distribution chain: 4,500 tax regulations, including bylaws and guidelines, were surveyed; 3,000 regulations have been streamlined, tax cases pertaining to March 2008-17 were resolved last year.
INTA also lent its support to economic operators in flood-stricken areas last year.
Coronavirus Impact
The 111% increase in tax revenues come as Omid Ali Parsa, director of Iranian National Tax Administration, had predicted earlier this year of witnessing a 400-trillion-rial ($1.36 billion) decline as a result of coronavirus.
“Numerous aspects of the coronavirus crisis on different economic sectors are not clear so it is not possible to estimate tax revenues to be gained from each tax base,” Fars News Agency quoted Parsa as saying.
“But what is patently clear is that business owners pay taxes on the profits of their businesses; you can’t tax them when they haven’t made any profit.”
The INTA chief had further said that under the best-case scenario, about 1,400 trillion rials ($4.76 billion) out of 1,800 trillion rials ($6.12 billion) set in the budget law for tax revenues in the current year (March 2020-21) should materialize, if efforts to contain the economic impacts of the virus prove to be effective by the end of spring (June 20).
Following the outbreak of coronavirus, INTA took multiple measures to ease the burden on taxpayers and support businesses and individuals with cash flow problems, with difficulties in meeting tax reporting or payment obligations. For instance, the due date for the submission of VAT returns in the fourth quarter of last Iranian year (Dec. 22, 2019-March 19) was extended to May 20 and that of the first quarter of the current year (March 20-June 20) was extended to Sep. 5.
Deferral of tax payments for three months, allowing the payment of tax liabilities in installments over the period of nine months since the first application for tax deferral is submitted, and forgiving tax penalties were other measures introduced by INTA during the pandemic.