The Iranian National Tax Administration announced Wednesday that henceforth currency trade will be taxable.
In a press release posted on its website, INTA said that the decision is part of the provisions of the Direct Taxes Act.
“Buying and selling foreign currency is taxable and those who engage in such trade are required to file their tax returns,” it said.
The tax will be equivalent to 10% of the value of each transaction. It is not clear when the new rule will be applicable nor how the taxpayers will be identified.
It did say that the new rules will be implemented with the go-ahead from the Central Bank of Iran in line with Article 163 of Direct Tax Act.
As implied in the article, the tax would be a form of Financial Transaction Tax (FTT), which earlier were levied on selling shares, albeit at lower rates.
FTT is a generic name for taxes on transactions such as sale and purchase of financial elements such as currency, stocks and shares.
Taxing currency trade comes amid steep volatility in the forex market and it is seen as renewed government efforts to restore a semblance of calm to the near permanent chaotic market in which demand has always outstripped supply.
Earlier in the week, the governor of the Central Bank of Iran, Ali Salehabadi, announced plans to set up an electronic trade platform to register retail demand for currency.
While the platform is “designed to meet the small needs of the people”, as Salehabadi noted, there is speculation that this platform would be linked to INTA’s new tax system and help INTA identify and impose tax on currency trade.
“People can register the amount of currency they need at the platform and after that approach authorized exchange shops to receive the currency,” the senior banker said, expressing the hope that the new system would facilitate easier access to forex and help improve transparency in currency trade.
If it becomes operational, apart from efforts to control the currency market, tax earnings from currency trade could potentially be a reliable source of income for the government struggling with deep budget deficits.
Threat of CGT
The currency market in Iran is also threatened by imminent legislation that would impose capital gains tax (CGT) on trade of various assets.
Outlines of the law were approved by the Majlis in late May calling for CGT on profit from the sale of gold, gold ingots, platinum, forex, real-estate and vehicles. Stock trade is exempted.
According to the proposed legislation, a massive 40% capital gains tax will be levied on profit from the sale of homes held for less than a year. An annual three percentage points will be deducted from the profit earned from sale of property held for more than a year. A fixed 4% will be applied to property held for more than 12 years.
Cars owned for less than a year will be subject to 30% tax. An annual 10 percentage points will be deducted from the profit gained from the sale of automobiles held for more than a year. Cars owned for more than four years are exempt.
Gold and foreign currency owned for less than a year will be subject to 30% tax, 20% if held between 1-2 years and 10% if held for more than two years.
