Iran's Q1-3 Tax Earnings Surge by 60%

The Iranian National Tax Administration’s earnings grew by 60% in the three quarters of the current fiscal year (March 21-Dec. 21) compared to the corresponding period of last fiscal year, says the deputy head of INTA. 
Noting that the tax income was above the budgetary target for the period, Mohammad Masihi added, “We expect the figure to reach 2,700 trillion rials [$9.09 billion] by the [fiscal] yearend [March 20, 2022] as per [the fiscal 2021-22] budget,” he was quoted as saying by Fars News Agency. 
A total of 1,925 trillion rials ($6.48 billion) in tax were collected in the last fiscal year (ended March 20, 2021), indicating a 37% increase compared with the year before. 
According to Masihi, the government earned 107% of the estimated budgetary income from taxation in the last fiscal year. 
The government’s tax revenues consist of its returns from “direct taxation” and “tax on goods and services”. Direct taxes include three groups of “tax on legal entities”, “income tax” and “wealth tax”.
Direct tax earnings stood at 1,190 trillion rials ($4 billion) in the year ending March 20, to account for 136% of the projected income in the budget law and 46% more than the direct tax revenues of the preceding year (March 2019-20). 
“Tax on goods and services generated 735 trillion rials [$2.47 billion] for the government, accounting for 80% of the expected budgetary figure and 23% more than the corresponding revenues in the previous fiscal year,” he was quoted as saying by Fars News Agency. 
Referring to the sub-sections of direct tax revenues, the official said, taxation of legal entities generated 560 trillion rials ($1.89 billion) during the period, indicating a 27% growth year-on-year. 
A total of 395 trillion rials ($1.33 billion) in income tax were collected as well, registering a 36% year-on-year rise. 
Last fiscal year’s wealth tax income stood at 232 trillion rials ($781.14 million), showing a 178% increase compared with the year before.
The official blamed the coronavirus pandemic and decline in transportation and fuel consumption for a 14% decrease in petroleum products’ tax revenues and said INTA collected 60 trillion rials ($202.02 million) from taxation of petroleum products last year.
The government is looking to substantially increase its earnings from taxation in the upcoming fiscal year (to start March 21).
It expects to earn 5,270 trillion rials ($17.74 billion) in tax revenues in the next fiscal year (March 2022-23) — 95% more than in the current year. The target is part of the budget bill President Ebrahim Raisi submitted to parliament on Dec. 12.
For the first time, the budget counts on taxing all owners of cars valued at over 10 billion rials ($33,670) and owners of homes valued at over 100 billion rials ($336,700). 
Notably, taxation of economic enterprises declined significantly in the fiscal 2020-21 due to the imposition of Covid-19 restrictions and repeated shutdowns.

Low Tax-to-GDP Ration

Ahmad Ghaffarzadeh, advisor to Majlis Research Center (the research arm of the Iranian Parliament), said “most optimistic estimates put the volume of annual tax evasion in Iran at 1,000 trillion rials [$3.37 billion]”, implying that the volume may be much higher.
He says the tax-to-GDP ratio in Iran currently stands at around 7%, ILNA reported.
This is while neighboring economies register up to 12-17% in tax-to-GDP ratio; the share increases to 30-35% in developing countries, suggesting that Iran’s economy needs to achieve a 50% surge in this ratio to reach the average rate of tax-to-GDP among neighboring countries. Such an increase will materialize by setting new tax bases. 
Therefore, the only way to achieve this goal under the current sanctions regime is by cutting tax exemptions of special institutions, whose former directors now hold posts in the new government and of course, and preventing tax evasion, according to the Persian daily Etemad.
Official statistics show that of the 1,390 trillion rials ($4.68 billion) in tax income during the first half of the current year (March 21-June 21), 870 trillion rials ($2.93 billion) were gained from direct tax and the rest came from tax on goods and services. Just like past years, income from direct tax accounted for the lion’s share of tax revenues. Quarterly trend in tax revenues since the Q1 of the fiscal 2019-20 to Q2 of the fiscal 2021-22 shows many ebbs and flows: Q1 of the fiscal 2019-20 registered the lowest gains from taxation while Q2 of the current fiscal year posted the highest tax revenues. 
Except for Q2 of 2020-21, which registered a 13.5% decline in tax income compared with the preceding quarter, all other months saw a positive shift (but not necessarily an increase in tax revenues) compared with their previous months. 
However, fluctuations in the ratio of tax to the government’s overall revenues and also to GDP remained uninspiring; they can fan the flames of instabilities and tax revenues remain unpredictable. When a projected income does not materialize, the government will be forced to address the deficit by opting for other options. 
The respective shares of direct tax and tax on goods and services in total tax revenues stood at 62.8% and 37.1% in H1. Of the direct tax income, 33.1% came from tax on real entities, 25.1% from income tax and 4.6% from inheritance tax. The share of direct tax decreased while the share of tax on goods and services increased in H1 due to the fact that almost all economic activities faced restrictions during the first half of last fiscal year and consequently witnessed a decline in income. 
Despite a number of peaks in Covid-19 cases in the early months of the current year, tax revenues increased, suggesting that the current year’s tax income is bound to exceed last year’s (2,070 trillion rials or $6.97 billion at the current exchange rate).
Tax-to-GDP ratio has a positive correlation with the economic dynamism of the country. Notably, tax revenues are the best way for tackling the budget deficit resulting from the fall in oil revenues. The method and level of taxation are different in other countries; for years, Iran has been wrestling with challenges, including tax evasion of high-income groups like doctors and lawyers. 
The low ratio of tax to GDP in Iran is alarming because it is one of the main indicators of economic development. It reflects the real production and also shows the level of accountability of officials to the public. Experts have time and again demanded the decline in tax exemption of special institutions. 
According to a report by ILNA, special institutions held 10% of the country’s economy in the month ending Dec. 21, 2019.

9% VAT on Agrifood Imports as of Jan. 3

The exemption from value added tax on food and agricultural imports will be removed as of Jan. 3, 2022, but their supply to the domestic market will remain tax exempt just like their locally-produced counterparts, Tasnim News Agency reported. 
According to a letter by the Iranian National Tax Administration to the Islamic Republic of Iran Customs Administration, food and agricultural products categorized under sections 1, 3 and 5 of Article A of Value Added Tax Law, namely all unprocessed agricultural products, including horticultural products, medicinal plants, rangeland products, forest products (including timber), greenhouse crops (vegetables, cucurbits, flowers, plants and mushrooms), seeds, seedlings, pesticides and fertilizers, milk, cheese, yogurt, eggs, flour and bread, all types of meat and meat products, rice, pulses, soy and soy protein, edible oils (both vegetable oils and animal fats), baby formula, fertilized chicken egg and day-old chickens will be subject to a 9% value added tax as of Jan. 3, 2022.
“VAT usually has to be levied at the end of the supply chain, but unfortunately it is now being imposed on every entity in the supply chain,” says Esmaeil Yazdanpanah, a member of Iran Chamber of Commerce, Industries, Mines and Agriculture. 
Noting that revenues from import duties should be spent on market and import regulation and production, he added that the imposition of VAT, in its current form, is putting tremendous pressure on producers. 
“It seems that unless we have a proper system, it is not possible to enforce VAT in its current form; its consequences outweigh its benefits,” he was quoted as saying by the Persian daily Jahan-e Sanat. 
“The government can apply its intended policies on import duties, but they will be problematic as long as we do not execute the VAT system in a transparent context. The systems and organizations [involved in the implementation of value added tax] are not integrated and interconnected. A shared database must be established among the ministries of industries, agriculture and roads. If not, such measures could shock the market and affect it in a negative way.”
Yazdanpanah noted that a system must be devised to support low-income deciles both directly and indirectly. 
“In the absence of such a system, all pressures would eventually be passed on to consumers and particularly the vulnerable groups. Low-cost items like rice should be imported to provide at least food for these groups. Support packages need to be allocated to low-income deciles first and then such decisions should be made. These policies put direct pressure on the consumers; the low-income individuals will be under more pressure and some key food items may be removed from their shopping list,” he said.