Tax revenues increased by 31% in the last fiscal year (March 2019-20) compared with the year before to reach 1,430 trillion rials ($8.93 billion), the head of the Iranian National Tax Administration says.
According to Omid Ali Parsa, the share of tax revenues in budget increased from 37% in the fiscal 2018-19 to 54% last year, Mehr News Agency reported.
“The average growth in tax revenues over the past five years was 21%,” he said.
Parsa added that value added tax gains hit 250 trillion rials ($1.56 billion).
Amid financial constraint, the government is counting on tax as a major source of revenue in the new fiscal year (started March 20). New forms of tax have been introduced to curb the widening deficit the government budget has long been suffering from.
The INTA director said 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 its comprehensive Direct Tax Reform Bill to the office of First Vice President Es’haq Jahangiri, which contains new tax measures such as 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 decisions people make 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 directs us toward economic and social justice, it will help the government tackle a fraction of its budget deficit and finally it will come with low social costs, as only the rich are subject to wealth tax,” he told the Persian-language weekly Tejarat-e Farda.
In early January, Majlis Joint Commission, a parliamentary body responsible for reviewing the budget bill before its final ratification approved wealth tax on homes with a value of more than 100 billion rials ($625,000) and cars worth more than 10 billion rials ($62,500). In the bill proposed by the Economy Ministry, homes valued over 50 billion rials ($312,500) and cars worth more than 5 billion rials ($31,250) 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 owned for one to six years. It will be 10% for homes owned for seven years and more, Khabar Online reported.
Salami noted that Iran has ridiculously high interest and inflation rates that make it economically unviable for people to keep their money at 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. Imagine the psychological impact of government imposing 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 little for wealth tax, as few people own luxury homes and cars,” he said.
The expert noted that the only concern about personal income tax is the government’s failure to identify individuals’ real income, which is unnecessary, as most transactions are now conducted by banks and the Central Bank of Iran can put people’s and entity’s needed financial data at the Iranian National Tax Administration’s disposal.
“The individual income tax or personal income tax is levied on the wages, salaries, dividends, interest and other income a person earns throughout the year,” he said.
Noting that taxation accounts for the greater part of revenues in developed countries, he added that so far, there has been no wealth tax in Iran.
“Considering the point that only the rich are subject to wealth tax, this type of taxation is currently unlikely to urge the middle class to transfer their capital to forex or gold coin markets. With new taxes, the government will be able to boost its revenues and decrease speculative practices,” he said.
Salami said the Economy Ministry’s Direct Tax Reform Bill has a long way to go before becoming a law, as it must be approved by the government in the first place and probably the next parliament.
