The Iranian National Tax Administration earned 2,314 trillion rials ($7.73 billion) in tax income during the first four months of the current fiscal year (March 21-July 22).
The figure stood at 852 trillion rials in the corresponding period of last year, indicating that tax revenues have grown by more than 171% year-on-year.
Tax on legal entities stood at 576 trillion rials ($1.92 billion) during the period, Mehr News Agency reported.
INTA’s earnings from income tax and wealth tax stood at 245 trillion rials ($819 million) and 53.46 trillion rials ($178 million) respectively.
The report noted that direct taxation stood at 876 trillion rials ($2.92 billion) and tax on goods and services reached 562 trillion rials ($1.87 billion).
Significant Rise in Tax Declarations
A total of 4.44 million tax declarations have been submitted by real entities in the current Iranian year (March 2022-23), indicating a more than a 50% increase compared with last year, Mohammad Taqi Pakdaman, an INTA official, said last month.
“As many as 2.2 million new taxpayers were identified in the fiscal 2021-22, thanks to the streamlining of bank payment gateways,” he was also quoted as saying by IRIB News.
Tax revenues accounted for 48% of all government revenues in the first quarter of the current fiscal year (started March 21), Fars News Agency reported, citing INTA’s database.
According to Article 44 of the Iranian Constitution, all current expenses of the government are to be sourced from revenues gained from tax and duties while income from gas and oil are to be spent on investment and civil development projects.
From total tax revenues, INTA says, 28.9% were spent on pension funds and payments to retirees; 24.5% on providing security; 0.5% on the Islamic Republic of Iran Broadcasting (Iranian state-controlled media corporation); 16.6% on remuneration of government employees; 7.8% on expenses of national organizations; 11.1% on payment of the government’s share in employees’ retirement and 4% to the Foundation of Martyrs and Veterans.
Meanwhile, 2.9% went to provinces; 12.6% to education in provinces and the Ministry of Education while 1.1% were spent on other expenses.
Taxation Gearing Toward High-Income Enterprises
The taxation system is shifting its focus on high-income enterprises, Davoud Manzour, the head of Iranian National Tax Administration said recently.
Stressing that tax on manufacturing enterprises has reduced by 5% to 20% this year, he added that tax forgiveness is on INTA’s agenda for certain businesses and the overall tax income is projected to see a 2.5-fold increase this year.
“However, from 4 million taxpayers [who have submitted declaration of their income], 1.6 million have been entitled to zero taxation and 800,000 others are to pay less than 5 million tomans in tax [$167]. Instead, 5% of high income taxpayers, including medical doctors and lawyers will account for 50% of our tax income,” he said.
As per the fiscal 2022-23 budget of the government, annual income tax exemption ceiling has been set at 672 million rials ($2,247).
Earlier, INTA announced that 1.1 million small- and medium-sized enterprises have been exempted from taxes.
“Tax on 80% of SMEs will be no more than 50 million rials and that of 400,000 taxpayers will be between 50 and 200 million rials [$668]. The tax of 100,000 businesses will be more than 200 million rials,” the head of INTA was quoted as saying by IRNA.
INTA has required businesses whose sales exceeded 48 billion rials [$160,000] in 2021-22 to declare their earnings for taxation.
The profits tax on enterprises will be calculated based on their sales deposited into their point-of-sale systems, says the head of Auditing Department of the Iranian National Tax Administration.
“The profits businesses make is taxed by INTA; the higher the taxpayers’ profits, the more their taxes. According to Article 101 of the Law on Direct Taxes for Business Owners, up to 360 million rials [$1,200] in [annual] profit will be exempt from tax in the fiscal 2021-22,” Shahin Mostofi was also quoted as saying by Otaghiranonline.ir, noting that the sum of 360 million rials will be deducted from the profits made during the year and the rest will be taxed.
He added that up to 500 million rials [$1,672] of profit are subject to a 15% tax; a profit of between 500 million rials and 1,000 million rials [$3,344] is subject to a 20% tax and 25% tax will be applied to profits exceeding 1,000 million rials.
The latest proposal by the Ministry of Economic Affairs and Finance on taxing bank transactions provoked the ire of economic players and business owners.
Business owners want government officials to understand that sanctions and inflation have tightened the screws on them and that the new tax would be synonymous with the end of their businesses.
“Before coming to office, the new administration and President Ebrahim Raisi personally used to claim that they would not tie people’s livelihoods with sanctions. But in actuality, the economy and people’s livelihoods were tied to sanctions; ill-judged economic policies have cemented this tie more than ever. In an economy, talks and promises are not consequential; rather it is decisions, strategies and approaches that are pivotal. Some officials presume that they will be able to reduce the pressure on people if they say ‘fair distribution of subsidies’ instead of ‘deregulation’ or say ‘we won’t tie livelihoods of people to sanctions’ instead of ‘increasing taxes’. It is strange that they have yet to understand that the country’s economy is dependent on oil exports; any move that leads to the decline in oil revenues would negatively impact people’s livelihoods,” Morteza Afqah, an economist and university professor, said in a write-up for the Persian-language daily Etemad.
Noting that the government is exerting maximum pressure on people to make up for the decline in oil revenues, he said, “The economy is not stable; the local currency is losing its value by the day. The economic instability is ruffling the feathers of producers, business owners and consumers. Under the circumstances, the government is girding its loins in preparation for another move to increase its revenues through taxation. It is not clear who gives counsel to the government; an expert with the rudimentary knowledge of economics knows that under sanctions and inflationary conditions, the imposition of tax spells the end of production and business.”
He noted that when imports account for a significant portion of raw materials, when oil revenues are not enough to purchase intermediate and capital goods, production will drop and when production declines, the overall revenues of supply chain decrease.
“It is gullible to think that you can replace oil revenues with tax income under such circumstances. Putting extra pressure on employees and business owners is detrimental for the production sector and will cause serious problems in the future. More protests will be held by businesses unless policymakers decide to wake up and smell the coffee,” he added.
Capital Gains Tax
Trade of capital goods with the purpose of profiting from the increase in their prices and gaining income will be subject to taxation, Manzour said.
“Once the capital gains tax becomes the law of the land, four commodities, namely housing, gold, foreign currency and automobiles, will be subject to tax. To implement this law, we need to have the 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 be reviewed in the open session of the parliament as soon as possible, he added.
As per the new approach employed by INTA, whistleblowing on tax evaders and other tax violations will be incentivized. The whistleblowing guidelines were communicated to tax offices on Feb. 27.
The public can log on Intamedia.ir and report tax schemes and evasions and enjoy a special reward.
Super-Rich Among Major Tax Evaders
Iran is one of the richest countries in terms of potential wealth, possessing the world’s fourth largest crude oil reserves and second largest natural gas reserves.
Such countries, often called “rentier states”, are usually self-sufficient in revenue generation and taxes account for a small share in their budgets. The result is a de-facto tax haven for wealthy residents, reads an article written by Mohammad Salami is a research associate at the International Institute for Global Strategic Analysis in Islamabad, Pakistan.
Excerpts of the text published by the Atlantic Council follow:
In the last few years, Iran has adopted new tax policies in part to compensate for revenue lost due to US economic sanctions. But the super-rich are still barely affected.
Iran’s fastest growth — 12.5% — occurred in 2016 in the aftermath of the Joint Comprehensive Plan of Action, which revoked multilateral sanctions on Iran in exchange for the peaceful use of the country’s nuclear program. Since 2017, Iran’s economy has been declining and in 2020, it faced a nearly 5% drop in GDP in part due to the US administration quitting JCPOA in May 2018 and reimposing US sanctions.
Since January 2018, the value of the rial against the US dollar has plummeted by around 600%. The inflation rate topped 40% in 2021 and the unemployment rate is in double digits.
Iran had a budget deficit of $12 billion in the current Iranian year (March 2021-22), more than 30% of the total budget. Due to the decrease in oil exports, Tehran has had no choice but to print money, which has compounded inflation and led to an increase of more than 50% for foodstuff.
These problems have forced Iran to reformulate its tax policies. The super-rich, it would seem, are a natural target. Forbes magazine reported in June 2021 that despite Iran’s overall economic woes, the number of Iranian super-rich has grown by 21.6% annually, compared to 6.3% worldwide.
Forbes has estimated the number of Iranian millionaires at 250,000, ranking Iran 14th globally in terms of rich people. With a population of 84 million, that means about 0.3% are super-rich. Saudi Arabia, in comparison, has 210,000 millionaires, even though the country exports 8.2 times more oil. With a population of 36 million, that means that 0.24% are super-rich.
To further understand the disparity in Iran, 0.3% of Iranians have at least $250 billion in assets. That is 8% more than Iran’s 2021 GDP of $231.55 billion.
In February, Iranian President Ebrahim Raisi ordered the implementation of 48 large industrial projects worth $17 billion in 13 provinces, which state media called “the largest industrial investment in the history of Iran’s economy”. However, these projects amount to only one-15th of the assets in the hands of the Iranian super-rich.
Globally, approximately 36-90% of government funding come from taxes. In Iran, however, the contribution is 40%. Iran’s super-rich account for 4-5% at best.
Tax evasion is estimated at 1 quadrillion rials ($3.134 billion), of which 50% are direct tax evasion, and the rest is due to the refusal to pay.
Rajab Rahmani, a member of the parliament’s budget committee, announced that tax evasion equals the budgets of 15 of Iran’s 31 provinces.
One reason the super-rich pay so little is because the interest on bank deposits isn’t taxed.
Omid Ali Parsa, the former head of Iranian National Tax Administration, disclosed that half of the country’s billionaires pay no taxes, based on a review of bank transactions of some 300,000 people with incomes exceeding 10 billion rials, while the other half pay less than what is required.
It has been more than a century since the first tax law was enacted in Iran but only in the last decade has the Islamic Republic begun to utilize taxes more seriously. Many Iranians, however, either consider taxation oppressive or aren’t aware of their obligations.
Evasion is aided by the fact that government agencies do not provide sufficient information to the tax agency. For example, a tax on luxury and expensive houses has been in the country’s budget for three years, but no tax revenue was obtained from this source in the first two years. The reasons include the newness of the law, the lack of a complete database of luxury houses and the absence of means for enforcement.
Over the years, despite the Islamic Republic’s pledges of economic equity, the super-rich have been able to change some laws to their advantage due to their access to centers of power.
Other centers of power, institutions and organizations under the supervision of Leader Ayatollah Seyyed Ali Khamenei are exempt from some taxes. The Astan Quds Razavi and Mostazafan foundations are two examples. The first is a religious institution that is under the direct supervision of the Leader and is the custodian of a major shrine in the Shia religious center of Mashhad.
The leader and his predecessor Ayatollah Ruhollah Khomeini also exempted Astan Quds Razavi Foundation from paying income taxes. It was only obliged to pay value added tax and some taxes for employees.
The foundation possesses a lot of urban real-estate across the country, as well as factories, farms and mines. It is difficult to estimate its assets because officials have less faith in financial transparency. However, Iranian economists estimate its net worth to be $15 billion or more.
Although this institution has many endowment properties that are exempt, according to the law, its 49 economic, social, educational, cultural and media companies could theoretically be taxed. But the authorities have chosen otherwise.
Given Iran’s economic crisis, there is widespread public resentment of the ability of the super-rich to avoid paying taxes. It remains to be seen whether the government will change its policies in the future.