The Iranian Parliament has recently decided that businesses located in the country’s free trade zones should pay value-added tax.
Secretary of the High Council of Free Trade Zones and Special Economic Areas Saeed Mohammad says the measure will scare away investors from Iran’s FTZ.
“Over the past few years, we have experienced capital flight to Turkey and now the UAE. The recent decision made by the parliament is harming economic activity in our FTZs,” Mohammad was quoted as saying by ILNA.
The parliament, he added, has put an end to almost all the advantages of Iran’s free trade zones.
“The parliament is not cooperating in granting customs tariff exemptions to businesses operating in FTZs. This is while our neighboring and regional countries are offering export incentives, tax reliefs and exemptions in FTZs and special economic zones. Some countries offer tax exemptions of around 30 years and in the UAE it even goes up to 50 years.”
Noting that the law envisions 20 years of tax exemptions for businesses that invest and engage in production in FTZs, he said presently local businesses are taxed doubly, such that they pay VAT once when they purchase their required raw materials from outside the zone and once again when they want to sell their goods.
“This means businesses who were promised an exemption of 9% VAT are now charged 18% and this is unacceptable. After this new regulation was ratified, a lot of businesses shut down their production lines. It is interesting to know that the Iranian National Tax Administration and the Islamic Republic of Iran Customs Administration believe that the recent legislation has serious shortcomings, is faulty and vague,” he said.
“When deciding on new measures for FTZs, we have to make use of the experiences of our neighboring and regional countries like Turkey, the UAE and China. FTZs in these countries are where economy thrives while in Iran, officials keep on imposing the mainland’s regulations on FTZs, which goes against their raison d’être.”
The official added that currently investors refrain from bringing their capital and ideas to Iranian free trade and industrial zones, referring to the declining trend of investments in FTZs.
“Economic players in the northeast of the country like Aras, Maku and Anzali are transferring their assets to Turkey and those in the south of Iran are transferring theirs to the littoral states of the Persian Gulf. There have also been cases where businesspeople have taken back their investment proposals in Iranian FTZs,” he said.
The Expediency Council, a powerful body that resolves disputes between parliament and the Guardians Council, approved last year the establishment of seven new free trade-industrial zones and 13 new special economic zones.
The Guardians Council is an oversight body that ensures laws are in line with the Iranian Constitution and Sharia.
The seven new FTZs include Mehran in the western province of Ilam, Sistan in the southeastern Sistan-Baluchestan Province, Baneh-Marivan in the northwestern Kurdestan Province, Bushehr in southern Bushehr Province, Qasr-e Shirin in western Kermanshah Province, Ardabil in northwestern Ardabil Province, and Incheh Borun in the northeastern Golestan Province.
“Members of the council also gave the green light to the creation of 13 special economic zones, namely Lar and Fasa in Fars Province, Abarkouh and Meybod in Yazd Province, Zanjan in Zanjan Province, Gachsaran in Kohgilouyeh-Boyerahmad Province, Serow in West Azarbaijan Province, Khaf and Qouchan in Khorasan Razavi Province, Khorramabad in Lorestan Province, Takestan in Qazvin Province, Shahin Shahr in Isfahan Province and Savojbolagh in Alborz Province,” he said.
Apart from the new zones, Iran has seven established trade and industrial free zones, namely Kish, Qeshm, Chabahar, Anzali, Aras, Arvand and Maku.
