Economy, Business And Markets

Tax Office Acquires Access to Bank Accounts

Business & Markets Desk
Tax Office Acquires  Access to Bank Accounts
Tax Office Acquires  Access to Bank Accounts

Iran's oil revenues have fallen to record lows, pushing the government to take an unprecedented step against privacy in its fight against tax evasion.

The loss of the government's main source of income is partly due to remaining restrictions on Iranian petroleum exports and partly due to a supply glut in the global economy that has sent crude oil prices to lows. President Hassan Rouhani's administration has also inherited a lot of fiscal commitments—including paying subsidies as cash handouts, unfinished housing projects, and over $30 billion debt to commercial lenders.

To address the issue, the president has moved to increase taxation base and its efficiency. In his quest to raise tax revenue and fight tax evasion, Rouhani has ordered financial institutions to send annual turnover and account balance of all institutions and individuals to tax authorities.

The Iranian tax system is so disorganized that over half the economy is not being taxed, the president said last year. That half does not include people who pay taxes, but cut corners here and there. So, the government's lost tax revenue, as a percentage of potential total, is higher than 50%.

In the amendment to direct taxation regulations, given to the Ministry of Economic Affairs and Finance by the president on Saturday, Rouhani raised the stake further.

The Iranian National Tax Administration will create a database of every person and institution's financial and identity information, something the office direly needs to counter tax fraud.

The database will include data on identity, transactions and finances of taxpayers. It will comprise information on identity—residence, commercial permits, transaction data—purchase of goods and services, import and export data, commercial and service contracts, foreign exchange and precious metals trading, insurance premiums and claims details, and bills of lading, financial records—annual turnover of securities, bank account turnover and yearend balance, and  turnover savings account information. INTA will also collect each person's list of assets including real estate and their trading record.

The amendment also allows the economy ministry to add to the list, given Cabinet permission. It modifies 60 articles of the direct tax law. There are regulatory changes to inheritance tax and tax exemptions. Even empty houses will be taxed from now on.

The new tax law requires all governmental, municipal, non-governmental, public, revolutionary and financial institutions, the State Organization for Deeds and Properties along with private institutions "that have the database's needed information or in any way assist individuals in obtaining income or assets," to provide the tax administration with information.

Critics have already started attacking the decision. Arguments mainly focus on possible outflow of money from bank accounts and drop in debit card and bank transfer usage. A temporary shock will ensue, not many can abandon the convenience of modern banking. Outlaws on the other hand will have a harder time in the new system.

There will be a loss of confidence in the banking system. No room has been left for privacy. The new law gives the executive branch powers that were previously reserved for the judiciary. Some may say harsh times need harsh measures, but the tax administration's newfound authority needs checks and balances.

So, the move's fatal flaw is also its potential strongpoint. It is comprehensive. Creating such a database will be no easy task and the administration has to fight for it every step of the way. The effectiveness of the new measures rests on how well the government can seal legal loopholes. What can be said now is that Rouhani has made a bold but necessary move. However, much of its success, and how it will be judged, depends on the execution.