The Iranian National Tax Administration earned 55% more during the first two months of the current fiscal year (March 21-May 21) compared with last year’s corresponding period.
INTA earned 610 trillion rials ($1.91 billion) in taxation during the period, according to its head, Davoud Manzour.
Speaking to Fars News Agency, the official noted that the revenue, which does not include customs duties, shows a 55% rise compared to last year’s corresponding period.
INTA earned 51.42 trillion rials ($161.2 million) from income tax on public and private workers during the same period, ISNA reported.
As per the fiscal 2022-23 budget of the government, annual income tax exemption ceiling has been set at 672 million rials ($2,106).
The revenue from public servants during the two-month period stood at 19.68 trillion rials ($61.69 million) while private employees contributed 31.73 trillion rials ($99.47 million).
1.1m SMEs Tax Exempt
Earlier, INTA announced that 1.1 million small- and medium-sized enterprises have been exempted from taxes.
“Tax on 80% of SMEs will not be more than 50 million rials ($157) and that of 400,000 taxpayers will be between 50 and 200 million rials ($627). The tax of 100,000 businesses will be more than 200 million rials,” Manzour was quoted as saying by IRNA.
INTA has obliged businesses whose sales exceeded 48 billion rials ($150,470) in 2021-22 to declare their earnings for taxation.
Profits Tax Based on POS Sales
The profits tax on enterprises will be calculated based on sales registered into their point-of-sale systems, says the head of Auditing Department of the Iranian National Tax Administration, adding that the money deposited into their banking account will not be factored in their tax calculation.
“The profits made by businesses is taxed by INTA; the higher the taxpayers’ profits, the more their taxes. According to Article 101 of the Law on Direct Taxes for Business Owners, up to 360 million rials ($1,128) in [annual] profit will be exempt from tax in the fiscal 2021-22,” Shahin Mostofi was also quoted as saying by Otaghiranonline.ir, adding that 360 million rials will be deducted from the profits made during the year and the rest will be taxed.
He noted that up to 500 million rials ($1,567) in profit is subject to 15% tax; a profit of between 500 million rials and 1,000 million rials ($3,134) will be levied 20% tax and profits exceeding 1,000 million rials will have to shell 25% tax.
The due date for the submission of tax returns for the fiscal 2021-22 of business owners is July 6, 2022.
The latest proposal of the Ministry of Economic Affairs and Finance on taxing bank transactions has provoked the ire of economic players and business owners. A large swath of shop-owners in Tehran, Arak and other cities shuttered to protest the new measure; they in fact wanted government officials to understand that sanctions and inflation have tightened the screws on them and that the new tax would mark the end of their businesses.
“Before coming to office, the new administration and President Ebrahim Raisi used to claim that they would not tie people’s livelihoods with sanctions. But in actuality, the economy and people’s livelihoods were tied to sanctions; ill-judged economic policies have cemented this tie more than ever. In an economy, talks and promises are not consequential; rather it is decisions, strategies and approaches that are pivotal. Some officials presume that they will be able to reduce pressure on people if they say ‘fair distribution of subsidies’ instead of ‘deregulation,’ or say ‘we won’t tie livelihoods of people to sanctions’ instead of ‘increasing taxes’. It is strange that they have yet to understand that the country’s economy is dependent on oil exports; any move that lead to the decline in oil revenues negatively impacts people’s livelihoods,” Morteza Afqah, an economist and university professor, said in a write-up for the Persian-language daily Etemad.
Noting that the government is exerting maximum pressure on people to make up for the decline in oil revenues, he said, “The economy is not stable; the local currency is losing its value by the day. The economic instability is ruffling the feathers of producers, business owners and consumers. Under the circumstances, the government is girding its loins in preparation for another move to increase its revenues through taxation. It is not clear who is giving counsel to the government; an expert with the rudimentary knowledge of economics knows that under sanctions and inflationary conditions, the imposition of tax spells the end of production and business.”
Afqah noted that when imports account for a significant portion of raw materials, when oil revenues are not enough to purchase intermediate and capital goods, production will drop and when production declines, the overall revenues of supply chain decrease.
“It is gullible to think that you can replace oil revenues with tax income under such circumstances. Putting extra pressure on employees and business owners is detrimental to the production sector and lead to serious problems in the future. More protests will be held by businesses unless policymakers decide to wake up and smell the coffee,” he said.
Capital Gains Tax
Trading of capital goods for profiting from the increase in their prices and gaining income will be subject to taxation, Manzour said.
“Once the capital gains tax becomes law, four commodities, namely housing, gold, foreign currency and automobiles, will be subject to taxation. To implement this law, we need to have the infrastructure to calculate profits from the sale or transfer of goods,” he was quoted as saying by Mehr News Agency.
The Majlis Economic Commission has completed its research on capital gains tax. Hopefully, the bill will be reviewed in the open session of the parliament as soon as possible, he added.
As per a new approach employed by INTA, whistleblowing on tax evaders and other tax violations will be incentivized. The whistleblowing guidelines were communicated to tax offices on Feb. 27.
The public can log on Intamedia.ir and report tax fraud and evasions, and receive a special reward.
Tax Evasion-GDP Ratio Low
Ahmad Ghaffarzadeh, an advisor to Majlis Research Center (the research arm of the Iranian Parliament) said the most optimistic estimates have put the volume of tax evasion in Iran at 1,000 trillion rials ($3.13 billion) per fiscal year, implying that the volume may be much higher.
He added that 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 and 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 be materialized by setting new tax bases over the years. Therefore, the only way to achieve this goal under the current sanctions regime is by reducing tax exemptions of special institutions, whose former directors now hold posts in the new government, and of course preventing tax evasion, according to the Persian-language daily Etemad.
Tax-to-GDP ratio has positive correlation with 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, such as 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 in an economy and also shows the level of accountability of officials.
