The lump-sum tax rate of 1.1 million small- and medium-sized enterprises has been set at zero, the head of the Iranian National Tax Administration, Davoud Manzour, tweeted on Friday.
“The lump-sum tax of 80% of SMEs will not be more than 50 million rials ($156), that of 400,000 taxpayers will be between 50 and 200 million rials ($622) and only 100,000 businesses will be taxed more than 200 million rials,” he added.
INTA has required businesses whose sales exceeded 48 billion rials ($149,300) in 2021-22 to declare their earnings for taxation, IRNA reported.
Speculative Income to Be Taxed
Earlier, Manzour said trading in capital goods with the purpose of profiting from their price rise and gaining income will be subject to taxation.
“Once the capital gains tax becomes law, four commodities, namely housing, gold, foreign currency and automobiles, will be subject to tax. To implement this law, we need to have the necessary infrastructure to calculate profits from the sale or transfer of goods,” he was quoted as saying by Mehr News Agency.
The Majlis Economic Commission has completed its research on capital gains tax. Hopefully, the bill will soon be reviewed in the open session of the parliament, he added.
Annual Income Tax Exemption
The Iranian National Tax Administration has set tax exemption ceiling on income at 672 million rials ($2,090) for the current fiscal year (March 2022-23).
A 10% tax will be levied on annual incomes in excess of 672 million rials ($2.090) to 1,800 million rials ($5,598); 15% on incomes in excess of 1,800 million rials ($5,598) to 3,000 million rials ($9,331); 20% on incomes in excess of 3,000 million rials ($9,331) to 4,200 million rials ($13,063); and a 30% tax on incomes in excess of 4,200 million rials ($13,063) and higher.
The limit on tax exemption for artists, including actors, directors and producers, has been set at 2,600 million rials ($8,087).
Notably, INTA eliminated the tax-exempt status of publications and institutes engaged in printing materials and coaching for university entrance exams (secondary and higher education).
Tax Revenues Hit Record High of $8.62b
A record high 2,770 trillion rials ($8.62 billion) in tax revenues were collected over the 11-month period ending Feb. 19, indicating a 60% increase compared with the corresponding period of last year, according to the INTA chief.
“Direct tax, including tax on legal entities, jobs and wealth tax, stood at 1,670 trillion rials [$5.19 billion], registering a more than 56% growth. Tax on goods and services, which includes earnings from value added tax, totaled 1,100 trillion rials [$3.42 billion], showing a 68% increase year-on-year,” he was quoted as saying by Fars News Agency.
As per the new approach employed by INTA, whistle-blowing on tax evaders and other tax violations will be incentivized. Related guidelines were communicated to tax offices on Feb. 27. People may log on www.intamedia.ir and report tax evasions and receive a special reward, he added.
A total of 1,925 trillion rials ($5.99 billion) in tax were collected in the last fiscal year (March 2020-21), indicating a 37% increase compared with the year before.
Taxation of economic enterprises declined significantly in the fiscal 2020-21 due to the imposition of Covid-19 restrictions and repeated shutdowns.
The government is looking to substantially increase its earnings from taxation in the upcoming fiscal year (to start March 21). It expects to earn 5,270 trillion rials ($16.39 billion) in tax revenues in the next fiscal year (March 2022-23) — about twice (95%) more than in what is expected in the current year. The target is part of the budget bill President Ebrahim Raisi submitted to parliament on Dec. 12.
Notably, for the first time, the budget counts on taxing all expensive cars and homes.
Ahmad Ghaffarzadeh, an advisor to Majlis Research Center (the research arm of Iranian Parliament) says, “Most optimistic estimates put the volume of annual tax evasion in Iran at 1,000 trillion rials [$3.11 billion],” implying that the volume may be much higher.
He noted that the tax-to-GDP ratio in Iran currently stands at around 7%, ILNA reported.
This is while neighboring economies register up to 12-17% in tax-to-GDP ratio; the share increases to 30-35% in developing countries, suggesting that Iran’s economy needs to achieve a 50% surge in this ratio to reach the average rate of tax-to-GDP among neighboring countries. Such an increase will materialize after setting new tax bases.
Therefore, the only way to achieve this goal under the current sanctions regime is by reducing tax exemptions of special institutions, whose former directors now hold posts in the new government, and of course prevention of tax evasion, according to the Persian-language daily Etemad.
Tax-to-GDP ratio has positive correlation with economic dynamism in the country. Notably, tax revenues are the best way for tackling the budget deficit resulting from the fall in oil revenues.
However, for years, Iran has been wrestling with challenges, including tax evasion of high-income groups like doctors and lawyers.
The low ratio of tax to GDP in Iran is alarming, because it is one of the main indicators of economic development. It reflects the real production in an economy and shows the level of accountability of officials.
Experts have time and again demanded the reduction in the tax exemption of special institutions.
