Economy, Domestic Economy

Gov’t Tightens Up on Tax Amid Cash Woes

Gov’t Tightens Up on Tax  Amid Cash WoesGov’t Tightens Up on Tax  Amid Cash Woes

Iran is implementing the current taxation system with the utmost rigor of law, says vice president of Iran Chamber of Commerce, Industries, Mines and Agriculture.

Pedram Soltani added that economic stagnation makes businesses feel the burden of tax more than it did in previous years.

When oil prices were high, tax authorities often proved open to bargaining. Iran also has a long history of smuggling, with large quantities of consumer goods entering the country and being sold VAT-free. Dual accounting systems—with one set of books based on incorrect figures to avoid tax—are not uncommon, wrote The Financial Times.

At present, many small businesses in Iran are struggling to come to terms with the country’s VAT law, which is gradually being implemented in each sector of the economy since 2008.

However, since Hassan Rouhani took office in 2013, the cash-strapped government has been compelled to tighten tax collection. The impact of US and EU sanctions over Iran’s nuclear program and plummeting oil prices have curbed economic growth, slashed people’s purchasing power and left the government struggling with a looming deficit. 

Soltani estimates about 40% of government income will come from taxes in the financial year to March 2016—30% higher than last year—and that VAT constitutes about half of the tax take.

President Rouhani has also repeatedly argued the need to make Iran’s economy more transparent to attract foreign investment once July’s landmark nuclear agreement with world powers is implemented early next year.

Some argue that the implementation of stricter measures to collect tax is wrong at a time when economic stagnation has hit capital markets, key sectors such as housing, steel and cement and the all-important car industry—the country’s biggest non-oil sector and employer of half a million people. “Iran’s industries are on average working at less than 50% capacity,” says Soltani.

Interest rates of up to 20% have exacerbated the situation, encouraging businesses and individuals to bank their cash rather than spend or pay taxes. This is while the government has lately adopted measures, such as granting loans to house and car buyers, to stimulate demand.

“For the first time in Iran’s history, we are encouraging people to spend money,” said Hossein Abdoh-Tabrizi, a government adviser.

With international sanctions expected to be lifted early next year, consumers are holding back on spending in the expectation of price falls and the arrival of better quality imported goods.

“Stagnation is not only because of declining purchasing power and problems in the supply-and-demand chain; it is also being fueled by a waiting period until implementation of the nuclear agreement,” says Soltani.

“Customers, investors and businessmen are not making any decisions for now, in order to make the best use of the positive post-sanctions atmosphere.”