Financial Tribune- President Hassan Rouhani is poised to unveil his choices for the new Cabinet in early August.
Rumors have it that Minister of Economic Affairs and Finance Ali Tayyebnia is not particularly interested in remaining at the helm of the ministry. A flurry of names, from Masoud Nili, the president’s top economic advisor, to Mohammad Nahavandian, the president’s chief of staff, are floating in the media as likely successors to Tayyebnia who once told the Persian daily Sharq, “I won’t stay with the next government. Why should I? I’ll get back to academic teaching and research. The salary would be higher and fewer insults will be hurled at me as well.”
In his four-year term as Iran’s economy minister, Tehran University alumnus and professor has been summoned more than a few times by lawmakers to clarify economic issues, including poor performance of the stock market, depreciation of the rial and tax hikes.
Tayyebnia managed to take up his ministerial position by winning 274 affirmative votes put of 284 parliamentarians (the most resounding vote of confidence achieved by any potential candidate in Rouhani’s first Cabinet) on August 15, 2013.
In his mission statement back then, Tayyebnia enumerated some of his ministry’s objectives and priorities as creating wealth, bolstering per capita income and purchasing power, adding sustainable jobs, bridging the income inequality gap, balancing financial and money markets, engaging in constructive collaboration with world economies and consolidating the pillars of domestic economy.
He also talked of advancing several schemes, including the Targeted Subsidies Plan, attracting foreign investment, privatization and improving electronic infrastructures of the Iranian economy.
Tayyebnia promised to streamline the country’s taxation system, banking and insurance, customs administration and capital market. He regarded stagflation, unemployment, consequences of a bank-oriented financial market and low investment rate as the challenges facing his office.
Perhaps the biggest achievement of the 57-year-old minister was his remarkable performance in reining in Iran’s longstanding double-digit inflation rate. Headline inflation for the year ending June 20, 2016, fell below 10% for the first time in 26 years on his watch.
In the Iranian year ending March 20, 2014, when Tayyebnia became minister, inflation was over 34% and the economy had shrunk nearly 6%. The rial had already lost 70% of its value during the currency crisis of the final two years of the previous government (the second term of former president, Mahmoud Ahmadinejad), the Central Bank of Iran data show. Today, the rial is stronger, while inflation is hovering around historically low levels.
The inflation’s downtrend led to economic stability in other markets over the past few years.
The Islamic Republic of Iran Customs Administration, which is a division of the Economy Ministry, carried out major reforms to improve its services, keep smuggling at bay and reduce the time needed for completing customs procedures. These measures led to a boost in customs revenues over the past four years and a significant decline in smuggling. For example, customs revenues and tax earnings reached 1.3 quadrillion rials ($34.1 billion) in the last Iranian year (ended March 20, 2017), indicating an 81% hike compared to the fiscal 2013-14.
In addition, the total value of smuggled goods during the three fiscal years from March 2013-16 stood at $25 billion, $19.8 billion and $15 billion respectively. Last year, the figure shrank to $12-13 billion, indicating a substantial decrease of 50% compared to 2013, official figures by the Headquarters to Combat the Smuggling of Goods and Foreign Exchange show.
Under Tayyebnia, the government’s tax revenues exceeded its oil income in the fiscal 2015-16 for the first time in half a century. His taxation policy proved to be effective in reducing the dependency of Iran’s budget on oil revenues from 70% during the previous administration to less than 30%. The Central Bank of Iran’s data show the country has witnessed a constant annual increase in tax revenues since 2013.
This, Iran’s National Tax Administration says, comes as the tax rates have remained unchanged over these years, except for the value added tax that increased by one percentage point. The rise resulted for the most part after repealing tax reliefs and preventing evasions.
The increase in tax revenues was not coupled with expansion of tax base, economist Pouya Jabal Ameli told Financial Tribune.
INTA should have curbed tax avoidance and taxed profitable jobs and commercial organizations.
“The rise in tax revenues was mostly thanks to overburdening those who were already in the habit of paying their taxes and not because of taming tax dodgers or broadening tax bases,” he said.
Noting that the country has been experiencing economic growth since the fiscal 2013-14, the economist said it is so natural to have a higher level of tax revenues when the economy expands.
“I do not deny the fact that tax revenues have increased over these years but the ministry failed to tax the whole underground economy or even a significant fraction of it,” he said.
Besides its inherent organizational responsibilities, the Ministry of Economic Affairs and Finance also has the authority to exert a significant degree of control over the financial, budgetary policies of other ministries. It can bring other ministries in line to streamline their administrative system. For example, when the government is facing a budget deficit, the ministry has to work out a solution whereby all ministries should chip in to tackle the problem.
“I believe that the performance of the ministry in this regard was weak,” Jabal Ameli said, adding that even the intra-organizational bureaucracy of the ministry itself is not efficient.
To pay tax, business owners have to toil through a time-consuming and costly bureaucratic labyrinth. Or economic players face a myriad of rules and regulations if they intend to attract foreign investment. Improving the ease of doing business and carrying out meaningful reforms in the bureaucratic system was up to the Ministry of Economy but, unfortunately, the ministry failed to rise to the occasion, following the Joint Comprehensive Plan of Action.
“The ministry failed to improve the business environment that requires introduction or even elimination of certain regulations. To start a business, you have to acquire hundreds of permits from a number of ministries, syndicates and organizations in Iran,” he said.
The Ministry of Economy, in conjunction with the Management and Planning Organization, has the mandate to set the stage for the government to implement budgetary policies. When a government has to tackle back-to-back budget deficits, there remains no room for the implementation of a fiscal policy. The ministry had to adjust spending levels of the government.
“In a nutshell, the country needed structural reforms in the economy and in the bureaucracy of the government, but these did not come to pass in the 11th government (the first presidential term of Hassan Rouhani), either due to Rouhani’s inhibitions or the inability of the Ministry of Economy,” Jabal Ameli concluded.