Domestic Economy

Tax Exemption on Fixed Assets Revaluation

Tax Exemption on Fixed Assets Revaluation Tax Exemption on Fixed Assets Revaluation

First Vice President Es'haq Jahangiri has issued a directive to government bodies to execute a July 20 Cabinet decision to exempt gains from revaluing fixed assets from tax, if companies revalue their assets before March 2017.

The decision will benefit most listed corporations, as they can restructure their statement to better reflect their state without incurring taxation.

Rampant inflation due to continued economic turmoil during the past five years has left the book value of corporate assets far behind their market prices, while their liabilities have surged due to high interest rates and recession.

Companies revalue their fixed assets—machines, buildings, patents or licenses—to accurately describe the true value of the capital goods they own. This should be distinguished from planned depreciation, where the recorded decline in value of an asset is tied to its age.

The purpose of a revaluation is to bring into the books the fair market value of fixed assets.

Upward revaluation is not considered a normal gain and is not recorded in income statement. This means it is generally not taxed. However, Iran's law taxes companies on these gains.

The government had allowed a temporary exemption for companies, if they carried out the revaluation before March 2016. Some companies, including automaker Iran Khodro, did not file the documents on time, overshooting the government deadline. Their stocks took a hit.

However, complaints and lobbying from companies which had failed to take advantage of the exemption soon followed with many media outlets supporting Iran Khodro and attributing market declines to ending the exemption.

Now with the Sunday issuance of the directive, the government has in effect extended the exemption's deadline so companies that failed to sort their books in time get a second chance.

The markets reacted positively to the news released on Monday.

Stocks on Tehran Stock Exchange moved 510 points higher since the news broke. TSE's benchmark rose 442 points to an 11-week high of 77,089.80 points on Tuesday.

The Iran Fara Bourse's main index advanced a full percentage point to 808.07 point by Tuesday's close, highest since June 8.

Jahangiri issued the Cabinet decision to four ministries along with the Management and Planning Organization for execution. He addressed the Ministry of Economic Affairs and Finance, Ministry of Industries, Mining and Trade, Ministry of Energy, and Ministry of Cooperatives, Labor and Social Welfare.