Economy ministry proposes abolition of agricultural tax exemption

Financial Tribune – The Ministry of Economy has proposed the abolition of the agriculture sector’s tax exemption as part of its comprehensive Direct Tax Reform Bill.

As per the ministry’s proposal, annual incomes from all agricultural activities under 600 million rials ($3,409) remain exempted from paying tax. Yet, if individuals gain over 600 million rials per year from such activities, the surplus amount will be taxed.

The Sixth Five-Year Development Plan (2017-22) targets an 8% share of tax revenues from GDP by March 2022, which currently stands at 6%. At present, revenues gained from tax are at least 1 quadrillion rials ($5.65 billion) behind the goals of the development plan, Fars News Agency reported.

Iran’s development plans outline government strategies in its budget planning for the next five years.

Experts say the reason for this disproportionate share in tax revenues in the country’s GDP is that some 50% of the Iranian economy enjoy tax exemption. This is to be topped by rampant tax evasion and faulty taxing methods.

According to Omid Ali Parsa, the head of Iranian National Tax Administration, 40% of Iran’s economic players are exempt from paying taxes.

Besides tax exemption, the government budget in Iran also suffers from widespread tax evasion.

Gholamali Jafarzadeh Imenabadi, a member of Majlis Plan and Budget Commission, has put the size of tax evasion at 400,000 billion rials ($2.27 billion) annually.

He has been quoted as saying that the value of tax exemption and tax evasion together is more than 1,000 trillion rials ($5.68 billion).

Independent observers put the figure at much higher rates.

Mahmoud Alizadeh, the deputy head of INTA, said on Monday that the Direct Tax Reform Bill has been evaluated by the Cabinet’s Economic Commission and will soon be ratified.

“After it is approved by the Cabinet, it will be sent to the parliament. The bill envisages a decrease in tax exemptions across different economic sectors,” he said.

The Ministry of Economic Affairs and Finance submitted to the office of first vice president its comprehensive Direct Tax Reform Bill containing new tax measures, including personal income and capital gains tax, in early 2020.

Amid financial constraints, the government is counting on tax as a major source of revenue. New forms of tax have been introduced to curb the widening deficit in the state budget.

According to Parsa, tax revenues increased by 31% in the last fiscal year (March 2019-20) compared with the year before to reach 1,430 trillion rials ($8.12 billion).

He noted that tax revenues’ share in budget increased from 37% in the fiscal 2018-19 to 54% last year, Mehr News Agency reported.

“The average growth in tax revenues over the past five years was 21%,” he added, stressing that value added tax gains hit 250 trillion rials ($1.56 billion).

Parsa also said that once the parliament gives its full consent, luxury homes and pricy cars will be subject to wealth tax.