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Maliyat Journal, No. 20
Summer 1998
IN THE NAME OF ALLAH
FROM THE PRESIDENT
The current tax code of
Shortly speaking, it does not seem likely that a deliberate
step of this kind being ever taken with regard does exist to support our
conclusion. First, no precedence is at hand in respect of old legislations to
show that this sort of scrutiny of the law being ever effected. Second, and as
far as the recent developments are concerned, the path followed has been the
same as in the past, and no indications could be found to demonstrate the
reverse.
Third, and the most important, evidence can be
found by studying the text of the law. The cases of inconsistency and
discordance of terminology are not very rare.
To be more specific, one may encounter words and
expressions in the law that suggest certain meanings and implications in an
article, while the same terminology might signify differently somewhere else in
the law. Thus the words and terms may lose their relationship with the sensual
framework constructed in the mind of the read and compel him to change his mind
and accept a new framework irrelevant with the first one, or sometimes overlapping
it.
Such is the situation for which we choose the
title "lack of semantic integrity". The discussion presented above is
not as mere philosophizing about the abstract matters. It concerns, rather, the
rights and duties of subjects of the tax law, namely the government and the taxpayers.
The words and terms of the law are not parts of poetic or musical compositions,
so that no serious damages would result from their disorganization. They are
rather the means of expression of material and tangible rights and obligations
of the people. It is worthwhile, therefore, to allocate enough time and
resources for the sake of putting such cases in order.
There is no room in this editorial to deal with
details and specific examples of the problem. We shall endeavor in the future
to touch upon the issue, so that it could pave the path for farther studies in
this regard.
Dr.
Aliakbar Arabmazar
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A Dormant Claim
and avoiding Futileness
By Dr.
Mohammad Tavakkol
The
wisdom and prudence call for avoiding fruitless actions that serve no useful
purpose. This rationale becomes more evident where the use of public resources
is called into question. A new circular of the tax administration embodies this
very logic and deals with a unique and unprecedented subject. The circular
concerns a situation where the extent of the taxpayer's annual loss is disputed.
Both the tax authority and taxpayer agree on occurrence of loss and lack of net
profit during the assessment period. They disagree, however, on the amount of
net loss that was sustained in the same period.
Part
of the article is provided in this issue, leaving the second (and lost) part to
the next issue of the journal.
Dormant
Claim and Avoiding Futileness
An
interesting circular of the tax administration is examined in this Article. The
circular relates to a situation where the extent of the taxpayer's annual loss
is disputed. To engage in resolving such a dispute is of no avail for the time
being, although the potentiality of the issue can not be overlooked. This
subject and reasonable solution provided under the circular are reflected on in
the article. An English translation of the same is presented in the English
section under a similar heading.
Respect
for Law, a Comment on the Verdict of the Supreme Council of Taxation
The
Law on National Cooperation Tax was passed few years ago by the parliament.
The
law, as amended, was adopted for a fixed duration of 5 years, and the tax imposed
by it was a tax on certain categories of property, which had to be collected once
only. The 5 year span of the law's lifetime is over, but the taxes assessed and
demanded but not collected, are yet collectible.
Ambiguities
arose in this respect and several questions rose by tax officials, mostly for
cases of tax evasion. These issues and the answers of the Plenary Board of the
Supreme Council of Taxation are examined in the article. The author reflects especially
on the emphasis of the Board on the requirement of abiding by the law, in spite
of other probable considerations.
A
Comment on the Article 132, DTA
The
Article 132 of the Direct Taxes Act provides tax holidays with regard to the industrial
and mining entities that obtained exploitation permits from certain authorities.
The wording of the article is not quite clear and definite in some respects.
This led to misinterpretations, against which some complaints were filed with
the court of Administrative Justice. The author examines these developments and
comments on the implications of the Article 132 and the Notes appended thereto.
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Tax News
"Tax News" in this issue of the
journal is devoted wholly to the tax changes in the State Budget Bill of
1988-89.
State Budget of the Iranian year 1377 (1988-89)
The
State Budget Bill for the Iranian year of 1377 (March 21, 1998 to March 20, 1999)
was passed by the parliament on 28 January 1998 and published in the official Gazette
on 28 February 1998. The Bill - which is named the "Budget Law" after
being passed by the parliament - contains two parts: detailed budget figures
and budget regulations. The regulations consist of 60 Notes appended to a
single article that declares the approval of the budget and the sum of main
figures of revenue and expenditures.
The
"Notes cover various regulations, including those of taxation. The focus
of our discussion is on these latter "Notes". The most important
notes of this king are summarized below.
Note
2
Note
2 imposes certain conditions on government companies and entities for changing
the figures of their budgets. The restrictions so imposed include the domain of
tax as well. The limitations pertaining to the latter domains are as follows:
Paragraph
A
Paragraph
A of the Note 2 authorizes the state companies and non-profit entities affiliated
with the government to modify their annual budgets under certain conditions and
by the consent of the Budget and Plan Organization. The conditions to be
observed by those companies and entities include - inter alia - the following:
Such
alterations in the budget should not cause the amount of tax and dividends payable
to the government to be reduced below the figures predicted for these companies
and entities under the relevant section of the State Budget.
Paragraph
D
The
paragraph D of the Note 2 is also provided to prevent the reduction of expected
amounts of taxes foreseen under the budge. For this purpose, it stipulates certain
requirements to be observed in case of state companies, for their taking benefit
from the tax exemption accorded under the articles 138 and 172 of the Direct
Taxes Act (DTA)
The
Article 138, DTA provides that any portion of companies, profit derived from industrial
or mining activities shall be exempted from taxation, if the income so derived
is allocated to a special reserve for reconstruction, development, or completion
of existing industrial and mining units or establishment of new units.
The
same exemption shall also be granted if the profit of companies would be allocated
to a reserve for construction of houses for the companies' employees. Subparagraph
1 of Paragraph D is pertaining exclusively to the Organization of Reconstruction
and Development of Industries and The Companies affiliated therewith. It is a
vast and important governmental organization encompassing a large number of industrial
entities. In case, the Organization and its affiliates would choose to allocate
their annual profit to the reserves mentioned above, they could do so if one
condition is satisfied: the amount of taxes and dividends payable by them to
the government, should not be reduced form the relevant figures foreseen in the
budget, as the result of such allocation of profit and consequent tax exemption.
Article
172
Article
172, DTA Comprises Certain Charitable payments by taxpayers to the accounts
specified by the government. Such payments shall be accepted as deductible
expenditures in determination of the taxpayers' taxable income. Now, the
Subparagraph 2 of the Paragraph D of the Note 2 stipulates that in the case of
state companies, such charitable payments should not cause the income tax and dividends
payable to the government to be reduced from the relevant figures expected
under the State Budget. The condition so imposed on state companies seems not
to be felt as a real restriction by them, since it has no effect other than to
divert resources from charity to taxation.
Worth
mentioning are also the following points with regard to the Note 2: The limitations provided under the Note 2 are
all pertaining to the public corporations. They reflect the negative attitude
towards these entities, which is shared by majority of people, including the
legislature. The companies are blamed of lucking efficiency and profitability.
In fact they absorb a lion share of public resources, without generating
comparable results.
The restrictions so defined are repeatedly
mentioned under the Note 2 of the Budget Law for many years. The case being so,
it seems more appropriate to include them in the tax law, instead of re-including
in the Budget Law again and again.
Two big state-owned companies, namely National
Iranian Steel Company and National Company of Iranian Copper Industries are
treated completely in different manner, which shall be defined when touching
upon the Note 58.
Note
8
Paragraph
D of the Note 8 relates to contributions of natural or juridical persons or
"popular sectors" to the construction or completion of educational,
cultural and similar "atmospheres", as well as the payment made by
them for construction of roads, bridges and the like. Such contributions shall
be deducted from their taxable income, in computation of their income tax
liability. No construction duties shall be imposed on such activities and the
transfer of the "atmospheres" to the relevant authorities shall also
be exempted from taxation.
The
term "atmosphere" as understood in the context means the buildings
and their appurtenances and adjacent grounds. The following points, never the
less, are ambiguous:
-
The term "popular sector" is not quite understandable under the
Iranian law. The terms natural (or real) person and juridical person, on the
contrary, are well understood. The "popular sector" as understood by
the man in the street means a considerable number of people who may undertake
to do something for the sake of the society. If we take the term to mean in
this way, such a creature might not constitute a "taxpayer", so that
we could allow it to treat its contribution as deductible expenditure.
-
Although it is mentioned in the law that the transfer of completed
"atmospheres" to the "relevant authorities" is exempted
from taxation, but there is not any mentioning which would oblige people to
transfer such buildings to the government.
Nor
is there any hint to the linkage of deductibility of expenses to the transfer
of the "atmospheres".
Note
45
The
first paragraph of this section regards the provincial revenues. It introduces two
important tax provisions as well. They are as follows:
The Ministry of Economic Affairs and Finance
is called for assigning the task of assessment and collection of taxes in
respect of all companies and production and service units established in
provinces, on tax directorates of relevant provinces. Payment of such taxes in
any place, other than the location of establishment of factories, has been
prohibited.
To
grasp the point of this subparagraph, one has to remember that the competent authority
for receiving tax returns of companies and assessing their tax liability is the
tax office of the district, where the legal residence of the company is located
(article 110, DTA). Legal residence under the Iranian Commercial Law is the location
where the company is officially registered. There are considerable number of
companies that are registered and have their control office in one city (mostly
in capital city
The
implication of this state of affairs is that such companies have to pay their taxes
to the tax directorate of the city where their control office is located, while
their economic activity (or a considerable part of it) is performed somewhere
else. The logic behind the provision provided by the Note 45 is to revert this
and enable the local tax authorities to tax business located within their
jurisdiction, not with standing where they are legally registered.
The
wording of the provision is not void of ambiguity. The term "place of establishment
of company", for instance, is not a familiar phrase under the Iranian law.
We have titles like "place of registration of companies",
"residence of company", "and place of efficient management of
company", but not "the place of establishment".
The
weakness of the provision under discussion lies in its temporariness. According
to the Note 60 of the Budget Law, the regulations provided by the Notes are
executable in the budget year only. Thus the change of competence of tax authorities
will take effect for a short period of time. This may cause troubles and disturbances
as far as the day-by-day performance of the tax organizations duties is concerned.
The second provision provided by the Note 45
relates to a new sales tax to be collected during the budget year. The goods
covered by the tax are steel, copper products and mobile telephones. The tax is
collectible at the stage of selling by the producing companies.
Note
58
Paragraph
B of the Note 58 reads as follows:
"The
turnover (declared profit) of the National Iranian Steel Company and its affiliates
(companies, more than %50 of the capital shares of which belongs to the NISCO)
as well as that the National Iranian Company of Copper Industries for the year
1377 [1998-99] shall be subject to the provisions of the Article 138 of the Direct
Taxes Act of 1987 as amended".
The
phrase "turnover (declared: profit" of the year 1377 is vague. If it
means the declared profit arising from the turnover of the year 1377, then
operation of the rule will extend to the year 1378, since the profit of a year
is commonly determined in the following year. This result is in contradiction
with the Note 60, which confines the operation of the law within the boundaries
8 the year 1377. If else, we take it as meaning the profit declare in the year
1377, then the profit should be ascribed to the turnover of the previous year,
namely the year 1376, and not to the year 1377 as mentioned by the law.
Article
138 of the Direct Taxes Act, as it was mentioned earlier, grants tax exemption
to companies with regard to profits derived from industrial or mining activities
and allocated to a special reserve for development of existing or new similar
plants. Therefore, the rule of the Note 58 should be construed as being addressed
to both the tax authorities and the taxpayers (namely The Steel Company and the
Copper Company). The taxpayers are logically obliged to allocate all their
profits to the special reserve described under the law. They should refrain
from distributing or consuming it in any other way. Then, the tax authorities should
mutually consider the profit so allocated exempted from taxation.
The
full text of the tax provisions of the Budget Law are provided at the end of
the Persian section of the journal.
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ABSTRACTS OF PERSIAN ARTICLES
Editorial
Maintaining the integrity of terminology is a rule
that must be observed in drafting any regulations including tax law. This subject
is dealt with in the editorial, both in English and Persian sections of the
journal.
Tax
Regulations of the Budget Law
The State Budget of the Iranian year 1377 (March 21,
1998 to March 20, 1999) comprises two parts: budget figures and budget regulations
or "Notes". The "Notes” introduce different regulations,
including those of taxation. The author examines the latter notes, comments on
them and compares them with similar regulations of the previous years. A
summary of the article is reflected in the English section under the heading
"Tax News".
Experiences
of Three Countries in the Field of Tax Simplification
This is a Persian summary of a similar article
published in the Bulletin for International Fiscal Documentation. The
simplification work in
Dormant
Claim and Avoiding Futileness
An interesting circular of the tax administration is
examined in this Article. The circular relates to a situation where the extent
of the taxpayer's annual loss is disputed. To engage in resolving such a
dispute is of no avail for the time being, although the potentiality of the
issue can not be overlooked. This subject and reasonable solution provided
under the circular are reflected on in the article. An English translation of
the same is presented in the English section under a similar heading.
Respect
for Law, a Comment on the Verdict of the Supreme Council of Taxation
The Law on National Cooperation Tax was passed few
years ago by the parliament. The law, as amended, was adopted for a fixed
duration of 5 years, and the tax imposed by it was a tax on certain categories
of property, which had to be collected once only. The 5 year span of the law's
lifetime is over, but the taxes assessed and demanded but not collected, are
yet collectible.
Ambiguities arose in this respect and several
questions rose by tax officials, mostly for cases of tax evasion. These issues
and the answers of the Plenary Board of the Supreme Council of Taxation are
examined in the article. The author reflects especially on the emphasis of the
Board on the requirement of abiding byte law, in spite of other probable
considerations.
A Comment
on the Article 132, DTA
The Article 132 of the Direct Taxes Act provides tax
holidays with regard to the industrial and mining entities that obtained
exploitation permits from certain authorities. The wording of the article is not
quite clear and definite in some respects. This led to misinterpretations,
against which some complaints were filed with the court of Administrative
Justice. The author examines these developments and comments on the
implications of the Article 132 and the Notes appended thereto.
The End
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