Tax on stock trade took a drubbing in the first six months of current fiscal year (March 21- Sept 22) under a persistent bearish trend.
Government income from tax on share trade amounted to 33.75 trillion rials ($125 million) in the period, almost a third of the earnings in the corresponding period last year, according to data released by the Central Securities Depository of Iran.
Known as the financial transaction tax (FTT), tax is levied on buying and selling stocks, bonds and other financial contracts like options and derivatives.
Tax revenue consists of direct taxation and tax on goods and services. Direct taxes include three groups: tax on legal entities, income tax and wealth tax. Tax on stock trade falls under the wealth tax category.
Despite a general increase in tax revenue in the mentioned period, government income from wealth tax declined by half to reach 63.6 trillion rials ($235m) due to the steep decline in tax on share trade.
According to Mohammad Masihi, deputy head of the Iranian National Tax Administration, 1,385 trillion rials ($5 billion) in tax was collected in the first half of the current fiscal year, indicating a 62% increase compared to the corresponding period last year.
Tax on stock market activities is different from capital gains tax levied on share profit. The government on multiple occasions has denied the likelihood of levying capital gains tax on share profit.
As per rules, tax on stocks is equivalent to 0.5% of the total value of trade. This is not expected to increase in the present fiscal year (ends March 2022) because of concerns that any rise would discourage investment in the share market and exacerbate the already bearish trend.
Decline in tax revenue from the share market is linked to investors’ aversion to participate in the struggling market following the historic collapse in the summer of 2020.
Overall Decline
Data released by the Securities and Exchange Organization indicate stock market trade declined both in value and volume in the reviewed period.
The number of traded shares dropped from 1.423 trillion in the first six months of the previous fiscal year to 1.029 trillion in H1 this year down 15% annually.
Value of trade plunged 63% to 7,048 trillion rials ($26b) in H1 compared to 19,542 trillion rials ($72b) in the same period last year.
The government generated 179.89 trillion ($666m) in tax on stock trade in fiscal March 2020-21 -- a whopping 445% increase compared to 33 trillion rials ($122m) a year earlier.
The higher FTT last year whetted government appetite, convincing budget planners to raise forecast for the current fiscal year. As per the budgetary figures the government expects to collect 141.6 trillion rials ($524m) in tax on share trade.
