The government generated 179.89 trillion ($813 million) in tax on stock trade in the previous fiscal year (March 2020-21) – a fair enough improvement given the deep downturn in the second half of the year.
Data released by the Central Securities Depositary of Iran, the capital market clearing house, show the tax income jumped 445% compared to the 33 trillion rials ($150m) a year earlier.
Known as financial transaction tax (FTT), tax on stock is levied on buying and selling a shares, bonds and financial contracts like options and derivatives.
The income was above budget projections made following revenues in the previous fiscal year. Total income was forecast at 23 trillion rials ($104 million) in the budget.
While the taxman didn’t increase tax on share trade last year, the staggering growth can be explained by unprecedented increase in value of trade thanks to the deluge of new retail investors in the first few months of previous fiscal year.
Earnings from tax on stocks accounted for more than 9% of the government total tax income last year. The government collected 1,925 trillion rials ($8.75 billion) in tax that year, indicating a 37% increase compared to the year before.
According to Mohammad Masihi, deputy head of the Iranian National Tax Administration, the government was able to collect 107% of the projected budgetary income from taxes in the last calendar year.
Tax revenues consist of returns from “direct taxation” and “tax on goods and services”. Direct taxes include three groups: tax on legal entities, income tax and wealth tax. Tax on stocks falls under the wealth tax category.
In Iran tax from stock market activities is different from capital gains tax that is commonly levied on share profit. The government has denied it intends to levy capital gains tax on profit from share trade.
As per rules, tax on stocks is 0.5% of the total value of trade is not expected to increase in the present fiscal year (ends March 2021), Omid-Ali Parsa, the head of INTA has said.
The higher FTT has whetted government appetite as it has raised forecasts for this year and expects to collect 141.6 trillion rials ($643m) in tax on share trade.
Tax Revenue to Bolster Share Market
The government plans to use a big portion of its earnings from tax on share deals to bolster the bourse that is in dire straits since last summer.
The decision is part of broader supportive measures approved earlier in the month by Supreme Council of Economic Coordination, the top economic decision making body comprising heads of the three branches of power.
Accordingly, 80% of government revenue from tax on stock trade will be deposited with the Capital Market Stabilization Fund that has been created to help resolve the credit crunch in the bourse.
Tehran’s stock market is on life support after the price bubble burst last August and non-stop sell-side pressure continues with no end in sight.
