The Iranian National Tax Administration said interest on bank deposits of fixed investment funds are exempt from the new tax rules outlined in the fiscal 2022-23 budget.
INTA sought to clarify the apparent ambiguity surrounding the government budget leaving investors and capital market officials in a quandary whether or not the investment funds are eligible for the new tax regime, the Securities and Exchange News Agency reported.
The debate came after the Majlis in February lifted a ban on taxing interest on bank deposits of legal and institutional organizations while debating the budget.
Capital market officials were of the opinion that the legislation had created a legal contradiction arguing that current direct tax rules explicitly exempted the investment funds from tax.
They asked INTA to comment on the issue and it responded to a letter by Securities and Exchange Organization putting an end to the controversy, ensuring investors that investment in the special funds are tax-free.
Earlier capital market authorities had warned that the decision to tax bank deposits of legal entities may force investment funds in the capital market to change the composition of their portfolios.
In March, Mohsen Khodabakhsh, vice chairman of the SEO board of directors said the new tax rules could compel the funds to change deposit holdings in their asset portfolios.
“There are clear rules exempting investment funds from tax on income. Therefore, taxing their deposits has no legal basis,” he said.
He warned that if new regulations are imposed, the investment funds would replace their assets with other possessions, namely bonds.
“The SEO is of the opinion that funds must be exempt from tax because of their role in bolstering share market,” he noted.
So far INTA could not tax interest on bank deposits for both natural and legal entities as per the Direct Law Act. The new decision is in line with the cash-strapped government policy to raise tax revenue.
Lawmakers, however, exempted key institutions from the new law, including the sovereign wealth fund, pension funds and insurance companies.
The National Development Fund of Iran, Iran National Innovation Fund, Central Insurance company of Iran and Physical Damage Fund are among the known exemptions.
As per SEO data, as of early 2021 the total assets of 86 investment funds in the capital market stood at 2,600 trillion rials ($10.8 billion).
As for the asset composition of funds, they invested 258 trillion rials in stocks, 1,068 trillion rials in bonds and held 1,188 trillion rials in bank deposits, accounting for 9.9%, 41% and 45% of the their total assets, respectively.
