Economy, Domestic Economy

No VAT Rise Next Year

No VAT Rise Next YearNo VAT Rise Next Year

Value-added tax (VAT) rate will not increase next year, the government has announced.

As part of the legal obligation stipulated in note 2 of article 117 of the fifth national development plan, the government should increase the VAT rate by one percent every year so that it reaches 8% by the end of the plan (2015). Five percent belongs to the government and the remaining 3 percent to the municipalities.

For the Iranian year that started on March 21, however, the rate increased by 2 percent in light of the parliament's approval.

An official in the Tax Affairs Organization has confirmed to Mehr news agency that it has decided not to increase VAT for the next Iranian year starting on March 21, 2015.

It seems that the government awaits the parliament's green light for a permanent VAT act as of next year. Every year, the government has certain sellers and guilds pay VAT, which is usually resisted by some of them. The Tax Affairs Organization justifies the taxation by maintaining that it is the consumer who pays VAT in the end.

"The ministry of economy and finance believes that VAT rate should not increase next year and the current rate should remain unchanged", Ali Asgari, head of Tax Affairs Organizations said adding "the fifth national development plan calls for the government budget to be fully met through taxation revenue, however, the required infrastructure is yet to be laid pending required mechanisms that ensures justice in taxation."

As asserted by the parliament when it approved the VAT act, the VAT income should be used to support "production" as it is incurred by "the consumer" and it has to be earned within the cycle of economic activities, Asgari added.

He regretted that incomplete implementation of the VAT act has fed the perception that it works against production and said "economic players should familiarize themselves with the concept of VAT and how it works".

Elsewhere, Alireza Taribakhsh, VAT deputy in the Tax Affairs Organization dismissed the effectiveness of high VAT rates. However, he asserted that the government would remain committed to whatever decision made by the lawmakers.

VAT Act Reform

The amendment of VAT act will be finalized by the end of the current Iranian year (March 20, 2015) or in the beginning of the next year, Ali Fazeli, chairman of Iran chamber of guilds revealed.

"Shop owners and guilds are not happy with this type of tax [VAT] as they believe it hurts production. We have repeatedly announced that the act cannot be implemented across various guilds as it targets manufacturers, importers, sellers and those who add value to the product whereas tax is supposed to cover consumption.", he added.