The Iranian National Tax Administration (INTA) said value added tax will no longer be levied on commodity-linked certificates of deposit (CD) traded via the Iran Mercantile Exchange and Iran Energy Exchange.
The long-demanded move is in line with efforts to expand financial instruments and facilitate commodity-based financial tools, INTA said as reported by the Securities and Exchange News Agency (SENA).
Commodity CD is a security indicating ownership of the holder of a particular amount of a commodity supported by standard warehouse receipt issued by warehouses certified by the Securities and Exchange Organization (SEO), the capital market regulator.
Selling CDs in the primary market means selling the stored or deposited commodity by the owner, and buying it means buying of such commodity. CDs securitize a company’s product inventory and offer buyers easy ownership of goods without the usual hassles of storage and insurance.
As per INTA’s announcement, if a commodity that is an underlying asset for a CD is by nature subject to VAT, the tax will be levied only once t the time of delivery of the good.
The tax will be paid by the final buyer of the CD to whom the commodity is delivered.
Stakeholders have called for removing VAT on commodity CDs, arguing that it discourages suppliers from selling goods at commodity exchanges.
With the removal of this type of VAT, there is renewed hope for listing more commodities at the IME and IRENEX using commodity-based CDs by industrial, mineral and petrochemical companies.
Recent data show that Investors at the IME traded 359.97 million commodity-based CDs worth 75 trillion rials ($241 million) in the first four months of current fiscal year (March 21-July 22).
The trade included 264.27 million CDs backed by cement worth 1.86 trillion rials ($6m).
Cement was the top-traded commodity in volume, accounting for 74% of the total.
Gold-based CDs led in value. Close to 29.25 million CDs backed by gold coins worth 42.4 trillion rials ($136m) were exchanged in the four months, accounting for 57% of the value and 8% of volume of traded CDs.
Likewise, 57.53 million saffron-backed CDs worth 22.89 trillion rials changed hands, representing 16% and 31% of the total trade in volume and value, respectively.
