Article 4 of the general policies, based on which the government has recently started drafting the seventh five-year development plan, highlights the importance of overhauling the taxation system. It calls for strengthening the guiding and regulatory role played by tax in the economy with emphasis on production.
In recent years, the governments were more focused on generating income to tackle the budget deficit rather than getting the economy back on the rails, stated Nasser Zakeri, an economist, in an article for the Persian daily Shargh. A translation of the text follows:
One of the glaring examples of the government’s negligence is the small share of tax on property compared with the share of income tax. The justification of decision-makers is that under the heading of income tax, all sources of income of individuals, including wages, profits and rent, are included and if a person earns income from their assets, they will pay tax for all taxable items of their income.
One can counter that, especially in Iran’s economy, the income from the rise in the prices of assets, which does not seem to be real income, is much more prominent than the income obtained from assets. Empty homes are the best evidence for this claim.
Owners of these residential units are not willing to sell their properties even though they are not generating rent, thanks to the high income they generate with the passage of time and the rise in property prices.
By ignoring property tax, the government has excluded an important route through which rich people accumulate wealth, and deprived itself of a large source of income.
The bigger loss, however, is the government’s neglect of a powerful tool to spearhead the economy through taxation. By using this tool smartly, the government could have directed the owners of assets to invest their wealth in places that would promote economic growth in the long run.
Investment in Unproductive Sectors
In recent decades, a large portion of citizens’ wealth have been invested in unproductive sectors.
The exponential growth in real-estate prices, for instance, is mainly due to speculative liquidity flexing muscle in the housing market instead of inflation. Even the rising value of foreign currencies can be attributed more to liquidity rushing to the forex market rather than the degradation of Iran’s economy.
In other words, asset owners have opted to convert rials into foreign currencies rather than investing in production. The money that could bolster production or the stock market was poured into markets that not only failed to help economic growth, but also fueled the flames of inflation.
Under the circumstances, decision-makers tightened the noose on depositors instead of prudently directing financial resources into production and exerting pressure on owners of real-estate, foreign currency and gold. In fact, keeping money in banks is less detrimental to the economy than other methods.
Over the years, decision-makers have tried to make investment in banks less alluring to encourage depositors to invest in production. Such a policy failed to produce a single positive result, as depositors preferred destructive options such as buying real-estate, imported cars, foreign currencies and gold.
The smart application of property tax can help increase tax revenue and consequently finance the budget deficit as well as production. In addition, this policy will burst real-estate and forex market bubbles and contain inflation.
The government should pay special attention to the smart application of property tax in directing liquidity while drafting the seventh five-year development plan. It will not hurt the national economy, but rather enhance its integrity.
