Economy, Business And Markets

Seif Allays Concerns Over Taxing Bank Deposits

Seif Allays Concerns Over Taxing Bank Deposits  Seif Allays Concerns Over Taxing Bank Deposits

Governor of the Central Bank of Iran Valiollah Seif said in his first comments on the controversy surrounding the revised tax law that there is a “serious commitment” on the part of CBI to prevent any abuses of any bank account information.

The new tax law comes after the Aug. 22 decree by President Hassan Rouhani, who ordered financial institutions to send annual turnover and account balance of all institutions and individuals to tax authorities.

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

“This has nothing to do with bank deposits, but rather is a way to monitor the financial transactions of taxpayers,” Seif emphasized in a recent TV program.

Seif’s comments came after the deputy head of the National Tax Administration and head of the Communications Office at CBI made similar remarks, ensuring citizens that no taxes will be levied on bank accounts and that bank account information will remain strictly “confidential”.

Seif also drew upon similar experiences by other countries in organizing their tax system and the database they use, saying that it is done to “expand” the oversight of tax officials over their targets so they can make a more accurate assessment of tax returns. “Therefore this would only be a verification and monitoring tool,” he said.

“Since no taxes are charged on money deposited in banks and licensed credit institutions, taxmen do not need deposit information of citizens save for taxpayers,” Seif added.

Responding to criticism that the revised tax law would lead to capital flight, he reiterated that bank accounts do not serve as a criterion for tax assessment but rather it will be used alongside other tools like customs data to form a comprehensive tax database.

“This is not a new phenomenon as in the past whenever there was a need for access to bank account information, judicial permit was sought and in this case too, customer data protection is guaranteed,” the CBI governor said.

Proponents of the tax reform point to pervasive tax evasion in the country, arguing this would reduce the problem while others say the risk of money outflow far outweighs its benefits.

 Market Fluctuations  

Seif also touched upon upheavals in the foreign exchange market in the past two years, saying that while the turmoil in the forex market culminated in 2013, now it has been reduced by as much as 58%. “This is indicative of economic stability as well as predictability and security in the economy.”

The top monetary policymaker sounded positive about the prospect of unifying foreign exchange rates, saying the gap between the official rate and the market rate has now been reduced to 11.6%, which signifies the CBI’s preparedness for embracing a unified foreign exchange regime.

“The nuclear agreement and the upcoming sanctions relief will enhance foreign currency transactions and will be a big momentum in facilitating forex rate unification,” Seif hoped.

Market analysts are almost unanimous in declaring that a post-sanctions stable foreign exchange rate depends on how CBI responds to the situation. Scrapping the dual exchange regime and adopting a unified system would be inevitable, they say.


 Bank’s Independence    

Another hot topic that Seif addressed in his TV interview was the central bank’s independence. He noted that currently the CBI enjoys the highest level of autonomy and independence.

“Two requirements should be fulfilled to ensure the bank’s independence,” he said. “Firstly, the bank’s policymaker should be able to get things done despite pressure from the government and the fiscal budget; and secondly, there should be a harmonious relationship between members of the government’s economic team.”

Noting that currently both requirements have been realized, Seif emphasized the importance of “transparent” data collection and healthy figures in ensuring the bank’s efficiency.

 Banking Reform    

Addressing the need for sweeping banking reforms, Seif urged the banks hold themselves up to the standards of global banks with which they are poised to interact once the sanctions are lifted.

He said: “Banks’ financial statements should be rectified and their minimum reserve requirement should also be raised from 5.5% to 12%, which is the global norm. On the other hand, bad loans should also be addressed.”

Banks have been hit hard by non-performing loans that burst into the open in 2012, when banking sanctions against Iran gained unprecedented momentum, pushing many loan receivers on the verge of bankruptcy.  Ever since, Iranian lenders have struggled to make loans to businesses. Based on recent estimates, the total NPLs in Iran are over $30 billion, but the economy minister and other officials estimate them to be near $60 billion.