The government earned 1,340 trillion rials ($8.7 billion) in tax revenues since the beginning of the current fiscal year (March 21, 2019) to Feb. 29.
The current budget law has projected 1,425 trillion rials ($9.25 billion) in tax revenues up to the end of current Iranian year (March 19). The above figures indicate that around 95% of the target have already been realized.
Amid financial constraints brought upon by sanctions, the government is counting on tax as a major source of revenue in the next Iranian year. New forms of taxes have been introduced to curb the widening deficit in the government budget.
Omid Ali Parsa, director of Iranian National Tax Administration has said that once the parliament gives its full consent, luxury homes and pricy cars will be subject to wealth tax as per the budget bill for the next fiscal year (March 2020-21).
What's more, the Ministry of Economic Affairs and Finance submitted to the office of first vice president its comprehensive Direct Tax Reform Bill that contains new tax measures, namely personal income and capital gains tax.
What effect can these new taxes have on markets? Some experts, including Gholamreza Salami, a senior member of the Iranian Association of Certified Accountants, believe that wealth tax would have little, if no influence, on markets.
“The wealth tax rate is not high enough to have a significant impact on people’s decisions when it comes to making an investment. The rich don’t seem to get dogged by extra costs they might incur when buying cars or homes," he said.
“This type of tax, which is quite common in most countries, will have three constructive impacts: It will guide us toward economic and social justice, help the government tackle a fraction of its budget deficit and finally lower social costs owing to the fact that only the rich are subject to wealth tax,” he told the Persian-language weekly Tejarat-e Farda.
Amid financial constraints, the government is counting on tax as a major source of revenue in the next Iranian year. New forms of tax have been introduced to curb the widening deficit in the government budget
In early January, Majlis Joint Commission, a parliamentary body responsible for reviewing the budget bill before its final ratification approved the wealth tax on homes with a value of more than 100 billion rials ($709,219) and cars worth more than 10 billion rials ($70,921). In the bill proposed by Economy Ministry, homes valued above 50 billion rials ($354,609) and cars worth more than 5 billion rials ($35,460) will be taxed.
On the contrary, Salami said, the direct tax reform bill, particularly capital gains tax, would have a tangible effect on domestic markets, if enacted. For example, capital gains tax might increase home prices.
As per the direct tax reform bill, those who own a home for less than a year, have to pay 25% of their home-sale profit in taxes. The tax rate on home-sale gains will decrease by 2.5 percentage point each year for homes with a lifespan of one to six years. It will be 10% for homes with a lifespan of seven years or older, Khabar Online reported.
“Iran has ridiculously high interest and inflation rates. That makes it economically unviable for people to keep their money in banks. Over the Iranian years ending March 2018 and 2019, depositors saw their assets lose two-thirds of their value. Had they converted their rials into foreign currencies or invested in buying gold coin, their capital would have increased threefold,” Salami said.
“Imagine the psychological impact of the government’s imposition of tax on bank savings of these people. It will encourage them to withdraw their money from banks and invest somewhere else. Such a psychological effect would be small for wealth tax, as few people own luxury homes and cars.”
The only concern about personal income tax is the government’s failure to identify individuals’ real income, which is unnecessary given that most transactions are now conducted by banks and the Central Bank of Iran can put financial data of people and entities at the Iranian National Tax Administration’s disposal, Salami added.
The individual income tax or personal income tax is levied on the wages, salaries, dividends, interests and other incomes a person earns throughout the year.
Noting that taxation accounts for the greater part of revenues in developed countries, the expert said, “So far, there has been no wealth tax in Iran. Considering the point that only the rich are subject to wealth tax, for the time being, this type of taxation is unlikely to urge the middle-class to transfer their capital to forex or gold coin markets. By and large, with new taxes, the government will be able to boost its revenues and decrease speculative practices.”
Salami noted that the Economy Ministry’s Direct Tax Reform Bill has a long way to go before becoming a law. It must be approved by the government in the first place and will probably be verified by the next parliament.
