People who own homes with a value of more than 100 billion rials ($763,358) and cars worth more than 10 billion rials ($76,355) will have to pay tax as of next fiscal year (starting March 20, 2020).
The announcement was made by Gholamreza Tajgardoun, chairman of Majlis Joint Commission, a parliamentary body responsible for reviewing the budget bill before its final ratification.
“This has been proposed by the government as per the budget bill for the next year and the parliament has approved it as well,” he added.
Sales of 1 million barrels of oil have been projected by the government in the next fiscal year, however Tajgardoun said currently only 600,000 barrels of oil are being exported and the government will most likely run a budget deficit as big as 1,100 trillion rials ($8.39 billion) next year.
“The decline in oil revenues and budget deficit has prompted the government to expand the tax net to catch tax evaders. This is the first time the parliament has approved tax on luxury homes and cars. Plans are to introduce tax on empty homes with the cooperation of municipalities as well,” he was quoted as saying by the Persian-language daily Shahrvand reported.
“According to data provided by the Statistical Center of Iran, the average price of each square meter of residential floor area in Tehran has reached 130 million rials ($992) and that of homes located in the northern Tehran hovers around 300 million rials ($2,290). As such, residents of Tehran’s northern districts who own homes with an average floor area of 300 square meters will be subject to the new tax.”
Empty Homes
There are currently more than 2.6 million empty homes in Iran, 500,000 of which in the capital city Tehran.
"The number of empty homes in Iran is three times the global average," Mahmoud Mahmoudzadeh, the head of the Housing Division of the Ministry of Roads and Urban Development, has been quoted as saying.
The official noted that directing 40% of empty homes into the tenancy market would help meet the housing needs of Tehran’s residents.
“Like all other countries, a house must be considered a durable consumer good instead of a capital good. More than 75-80% of vacant homes across the country have been tracked,” he was quoted as saying by News.mrud.ir in December.
Lack of an accurate database on real-estate properties has been the main reason for the government’s failure to levy tax on homes and lands. Housing experts though believe that putting together such databanks for executive agencies is easy.
The Ministry of Roads and Urban Development has promised, according to the Iranian National Tax Administration, that it will have launched a website hosting real-estate property records by the beginning of the upcoming Iranian year (March 19).
Earlier, Economy Minister Farhad Dejpasand announced that in order to curb speculative practices, value added tax will also be charged on lands as of next year. Land accounts for 60-70% of the end price of homes and the VAT rate on land will be particularly high in order to rid the real-estate market of unscrupulous land owners and dealers.
Imposing tax on empty or luxury homes as well as land will help control prices. However, some experts believe that the misguided implementation of this law will lead to higher land prices as profiteers will offset the tax burden on profit made from a home sale.
Major Source of Funding Next Year's Budget
Mohammad Baqer Nobakht, the head of Plan and Budget Organization, says tax will be a major source of funding the next year's budget.
"We don't intend to increase taxes already paid by taxpayers," he said, noting that manufacturing enterprises will even see their tax bases reduced next year.
"We have introduced new taxes, such as capital income tax," he added.
According to the PBO chief, by annulling part of the staggering volume of tax exemptions, the government will also be able to make up for the breakaway from oil revenues.
According to INTA chief, Omid Ali Parsa, 40% of Iran’s economic players are exempt from paying taxes.
Besides tax exemption, the government’s budget also suffers from widespread tax evasion.
Gholamali Jafarzadeh Imenabadi, a member of Majlis Plan and Budget Commission, puts the size of tax evasion at 400,000 billion rials ($3.05 billion) annually.
“Up to 800,000 billion rials [$6.1 billion] will return to the government coffers [annually] if the current legislation on tax exemption is reformed and reviewed. I believe the value of tax exemption and tax evasion together is more than 1,000 trillion rials [$7.63 billion],” he said.
Value added tax accounts for the lion’s share of total tax revenues in Iran with 23.5%, as per INTA figures, followed by corporate tax and import tax. This is while income tax makes up the biggest share of tax revenues in high-income countries. Corporate (company) tax is the second top earner of such revenues in Iran.
Latest statistics on tax revenues provided by the INTA chief show the government earned 890 trillion rials ($6.79 billion) from tax during the first eight months of the current Iranian year (started March 21, 2019).
That’s a 4% rise over the same period of last year’s tax earnings, according to data provided by the Central Bank of Iran.
Tax revenues stood at 855 trillion rials ($6.52 billion) in the eight-month period leading to Nov. 21, 2018.
