Economy, Business And Markets

Plans for New Tax Regime in 2016

Plans for New Tax Regime in 2016Plans for New Tax Regime in 2016

Increasing oil revenues have for long sidelined the need for Iran to develop a modern taxation system.

Economy Minister Ali Tayyebnia made the statement while addressing the Ninth Monetary and Tax Policy Conference held in Tehran on Wednesday.

Tayyebnia noted that lack of a comprehensive economic database, widespread tax exemptions, complicated and ambiguous regulations, along with a general failure to uphold the law, are keeping tax revenues minimal, IRNA reported

These and other reasons have brought tax revenues below 7% of gross domestic product, based on statistics provided by the outgoing head of Iran’s National Tax Administration, Ali Askari.

This is while tax revenues account for 25-30% of GDP in developed countries.

With oil revenues crunched as a result of sanctions and the ongoing slide in crude oil prices, the President Hassan Rouhani Administration has set its sights on taxes. It is attempting what past governments have widely failed at: reforming the Iranian tax system.

"Reforms of the tax code, including creating more targeted incentives, increasing tax base and removing discriminations, will go into effect from the start of the next Iranian year (starting March 20, 2016)," Tayyebnia said.

The reforms will encounter stiff resistance from many sides, especially those who enjoy exemptions.

According to the economy minister, over 43% of the Iranian economy is tax exempt, including many non-government, state-controlled companies that have thrived due to the exemptions, in what is reminiscent of pre-revolution 18th-century France.

According to Askari, the inefficiencies of INTA go much deeper, as it is failing to tax the gray economy that makes up around 20% of GDP.

Exemptions, however, benefit a broad spectrum of the economy.

“For instance, the agriculture sector, which comprises 10% of GDP, is free from paying tax. Tax exemptions are enjoyed by 33% of 22.9 million guild members. They do file returns, but don’t pay a penny in tax,” he said.

“Tax exemption rates are different in each province. For instance, around 15-16% of the guilds in Tehran are exempt from paying tax, while 45% of guild members in Sistan-Baluchestan Province don’t pay taxes.”

Cooperatives, tourism and cultural sectors also receive tax relief.

According to Askari, government revenues via taxation in the seven months ending October 22 stood at about $10.45 billion, which is 84% of the estimated target, as opposed to last year’s 90%.

Meanwhile, the private sector is already decrying tax hikes.

"The big tax rise on private entities added fuel to the flames of economic recession," said the head of Tehran Chamber of Commerce, Masoud Khansari.

"In recent years, tax authorities place double pressure on the real private sector and producers rather than tax evaders or those who work in the underground economy."

Welcoming the news of a new boss assuming the mantle of INTA, Khansari noted that business owners and private sector players recognize taxation as the right of government, but do not approve of INTA’s assumption that everyone is a lawbreaker, Mehr News Agency reported.

Seyyed Kamel Taqavinejad, who has been serving as the managing director of Bank Sepah, was named by the Cabinet on Sunday to replace Ali Askari as the head of INTA.