Economy, Business And Markets

Higher Tax Rates Bad for Business at Time of Recession

Higher Tax Rates Bad for  Business at Time of RecessionHigher Tax Rates Bad for  Business at Time of Recession

A survey of 10 economists and representatives of Iran’s private sector economy shows they are against raising tax rates as a way to supplant the government’s receding oil revenues.

Interviewed by Ayandeh-Negar monthly, the group unanimously believed raising tax rates would pressure businesses that have been hit hardest by Iran’s ongoing downturn and that an increased tax burden would scuttle any investment plans.

Survey respondents included four members of Tehran’s Chamber of Commerce, Industries, Mines and Agriculture, head of Iran’s Electricity Syndicate, head of Iran’s Exporters Confederation, a deputy minister of industries, mining and trade and three university professors.

Manufacturers have been the mainstay of government tax revenues, along with government employees. Many companies and individuals have reaped the rewards of the government’s incompetence in collecting taxes.

Officials claim unverified figures, but half to three quarters of Iran’s economy are not getting taxed. These include countless informal job holders, businesses that keep multiple books, especially in trade and services sectors, and quasi-state companies that are exempt from paying taxes.

Those surveyed believed the government can increase its revenues markedly if it were to stop tax evaders. They warned that if the government takes the easy route and unloads the burden of increased taxes on Iranian manufacturers, the recession would deepen.

Survey participants added inefficiency and corruption in the tax administration to the lack of transparency in the economy as obstacles to efficient taxation. They said the administration should focus on fixing these three issues before raising tax rates.

The government has already set in motion plans to make the required extra revenue from increasing taxation efficiency and fighting fraud. This year, the administration is trying its newly-drafted taxation law. Income taxes have been slashed along with inheritance taxes. On the other hand, most tax exemptions have been revoked.

The general vibe of the new regulations is pragmatism. The focus is on getting taxes as easily as possible. Targeting taxes on those who can most pay them may or may not follow. However, those surveyed were pessimistic about government tax income targets, saying recession, corruption and tax evasion will increase tax shortfall.