A total of 4.44 million tax declarations have been submitted by real entities in the current Iranian year (March 2022-23), indicating more than a 50% increase compared with last year, says an official with the Iranian National Tax Administration.
“Ninety-five percent of projected tax revenues for the first four months of the current [Iranian] year [started March 21] have been realized. A total of 1,450 trillion rials [$4.5 billion] were gained in direct tax and value added tax on goods and services during the period. As many as 2.2 million new taxpayers were identified in the fiscal 2021-22, thanks to the streamlining of bank payment gateways,” Mohammad Taqi Pakdaman was also quoted as saying by IRIB News.
Tax revenues accounted for 48% of all government revenues in the first quarter of the current fiscal year (started March 21), Fars News Agency cited the Iranian National Tax Administration as declaring.
According to Article 44 of the Iranian Constitution, all current expenses of the government are to be sourced from revenues gained from tax and duties while income from gas and oil are to be spent on investment and civil development projects.
From total tax revenues, INTA says, 28.9% were spent on pension funds and payments to retirees; 24.5% on providing security; 0.5% on the Islamic Republic of Iran Broadcasting [Iranian state-controlled media corporation]; 16.6% on remuneration of government employees; 7.8% on expenses of national organizations; 11.1% on payment of the government’s share in employees’ retirement and 4% on the Foundation of Martyrs and Veterans.
This is while 2.9% went to provinces; 12.6% to education in provinces and the Education Ministry, while 1.1% were spent on other expenditures.
Taxation Gearing Toward High-Income Enterprises
The taxation system is shifting its focus on high-income enterprises, says the head of the Iranian National Tax Administration.
“We have received four million tax declarations from enterprises this year, 1.2 million more than in the last year,” Davoud Manzour was also quoted as saying by Fars News Agency.
Nothing that tax on manufacturing enterprises has reduced by 5% to 20% this year, he said tax forgiveness is on INTA’s agenda for certain businesses, noting that the overall tax income is projected to see a 2.5-fold increase this year.
“However, from 4 million taxpayers [who have submitted income declarations], 1.6 million have been entitled to zero taxation and 800,000 others are to pay less than 5 million tomans in tax [$156]. Instead, 5% of high income taxpayers, including medical doctors and lawyers, will account for 50% of our tax income,” he added.
As per the fiscal 2022-23 budget of the government, annual income tax exemption ceiling has been set at 672 million rials ($2,100).
Earlier, INTA announced that 1.1 million small- and medium-sized enterprises have been exempt from taxes.
“Tax on 80% of SMEs will be not more than 50 million rials [$156] and that of 400,000 taxpayers will be between 50 and 200 million rials [$625]. The tax of 100,000 businesses will be more than 200 million rials,” the head of INTA was also quoted as saying by IRNA.
INTA has required businesses whose sales exceeded 48 billion rials [$150,000] in 2021-22 to declare their earnings for taxation.
The profits tax on enterprises will be calculated based on their sales deposited into their point-of-sale systems, says the head of Auditing Department of the Iranian National Tax Administration.
“The profits businesses make 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 [$1,125] in [annual] profit will be exempt from tax in fiscal 2021-22,” Shahin Mostofi was also quoted as saying by Otaghiranonline.ir, noting that the sum of 360 million rials will be deducted from the profits made during the year and the rest will be taxed.
He added that up to 500 million rials [$1,562] of profit are subject to a 15% tax; a profit of between 500 million rials and 1,000 million rials [$3,125] is subject to a 20% tax and 25% tax will be applied to profits exceeding 1,000 million rials.
Gov’t Misconception
The latest proposal by the Ministry of Economic Affairs and Finance on taxing bank transactions provoked the ire of economic players and business owners. Business owners want government officials to understand that sanctions and inflation have tightened the screws on them and that the new tax would be synonymous with the end of their businesses.
“Before coming to office, the new administration and President Ebrahim Raisi personally 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,” Morteza Afqah, an economist and university professor, said in a write-up for the Persian economic daily Etemad.
“In 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 the 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 would negatively impact people’s livelihoods.”
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 gives counsel to the government; an expert with the rudimentary knowledge of economics knows that under sanctions and inflationary conditions, the imposition of tax will spell the end of production and business.”
Afqah noted that when imports account for a significant portion of raw materials, oil revenues are not enough to purchase intermediate and capital goods, production will drop and when production declines, the overall revenues of supply chain will decrease.
“It is gullible to think that you can replace oil revenues with tax revenues under such circumstances. Putting extra pressure on employees and business owners is detrimental to production and will 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
Trade in capital goods with the purpose of profiting from the increase in prices and gaining income will be subject to taxation, Manzour said.
“Once the capital gains tax becomes the law of the land, four commodities, namely housing, gold, foreign currency and automobiles, will be subject to tax. 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 the 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 to Intamedia.ir and report tax schemes and evasions and receive a special reward.
