The Administrative Justice Court has rejected a call by the National Tax Administration for taxing interest on bank deposits of fixed investment funds, ISNA reported.
There has been ambiguity surrounding the government budget leaving investors and capital market officials in a quandary over whether or not the investment funds should pay tax.
The issue was brought up again in February when parliament discussed lifting the ban on taxing interest on bank deposits of legal and institutional organizations while debating the 2022-23 fiscal budget.
Capital market officials are of the opinion that the legislation had created a legal contradiction arguing that current direct tax rules explicitly exempted the investment funds from tax.
Earlier they 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 Securities and Exchange Organization, 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 stressed.
He warned that if new tax rules are imposed, investment funds would replace their assets and move to 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 cannot tax interest on bank deposits for both natural and legal entities as per the Direct Law Act. The decision was 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 total assets of 86 investment funds in the capital market was 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.
