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Maliyat journal (Iranian
Tax Review)
No. 39, winter 2005-2006
In the name of Allah
From the president
Now the thirteenth
year of publication of Maliyat journal is about to be expired and we are on the
verge of a further stage of our journalistic work. During that relatively long
period, many events took place and numerous developments occurred in the
economic and social scenes of the country. But in spite of all those
happenings, the role of taxation on economic life of the nation has remained
even more important than before. The evolution of events and circumstances has
had only the effect of furthering the degree of such significance.
We had
emphasized on the very subject in the first issues of this magazine, the
correctness of which is visible now more than any other time before. Those days
we had pointed out that by having regard to the facts of the contemporary world
and taking lessons from the recent history of our own country, and that of the
world, it would certainly become clear that the role of safe and sound
resources such as taxation – instead of oil revenue – should be increased in
securing necessary funds for the national budget. Soundness of this view is
much more perceivable at the present than a decade before.
Now, the
point is that what steps should be taken to facilitate the progress of affairs
towards the realization of the said goal. A realm of action would be the
determination of tax policies as a part of general economic strategy of the
country. That relates the competence of higher authorities of the government.
What has been published in this regard, all have been in harmony with the same
idea so far. As an example one can to refer to relevant provisions of the
fourth development plan, about which some comments had been written in previous
issues of this journal. Other legislative measures have also been taken during
the recent years, among which the extensive amendments of the Direct Taxes Act
(the main tax law) was the most important one. A draft of value added tax law
has also been submitted to the parliament (Islamic Consultative Assembly) that
is now under the parliamentary deliberation. It would be expedient to take
further steps for additional legal amendments with the aim of achieving the
goals prescribed herein.
But the
point referred to above has another side that relates to optimization of
conduct of the tax organization and removing its defects and shortcomings. A
serious job that would necessitate continuous planning, uninterrupted endeavor,
and most important, collective work and cooperation of all concerned. Any
action and initiative in this way will effect positively on the result of work
and will serve a noble purpose, that is deliverance from depending on
exportation of oil asset, and thereby strengthening the country's independence.
Attempts
of the tax organization's personnel will be of utmost importance undoubtedly,
but constitute only one side of the equation and the other side, the taxpayers,
are to be given due attention. Best output will be attainable through
coordination between both sides of the issue. It is a crucial question for tax
administration all over the world to know how people can be induced to answer
in a sincere way to demands and requirements of the tax law. It may be worth
allocating resources for a research program in this field, but before that, we
can pay attention to some general points and considerations that are based on
experience and common sense.
Manner of
treating and dealing with taxpayers is the first matter that should be taken
into consideration. Overwhelming majority of people would react positively to
good and gentle behavior. To be treated with respect and observance is pleasant
for everybody and except in very rare cases would have agreeable results. The
tax officials should be patient and listen to taxpayers carefully, pay
attention to their cases and, more important, to accept their arguments should
they find them right and lawful. And if cases are unacceptable, the officials
must be tolerant enough to explain their view in a way that the rule of law is
sufficiently explained for taxpayers.
That may
sound a time-consuming process, but one should have in mind the impact of it on
reducing the number of disputes and cases of referring to administrative and
judicial forums for settlement of various tax claims. Considerable amount of
time, money and energy might be spent by taxpayers, as well as the tax
organization, in respect of tax cases and disputes. This is a problem
encountered by many countries all over the world and vast studies are underway
to cut down such waste of resources by simplification, etc. Our country is not
an exception to this common situation and remedies are to be sought.
A simple,
but effective, solution is close at hand, that is to solve disputes at early
stages and not allowing it to develop to a lengthy case. Fortunately the tax
law has provided us with a proper frame in articles 238 and 239. The tax
organization has already placed emphasis on this subject and directed the
relevant officials to the mechanism envisaged under those articles of the
Direct Taxes Act for solving cases at early phases.
Aside
from that, the duty of finding unrecognized taxable persons and activities and
following up of payment of due taxes should also be taken very seriously.
Research programs are also of great significance and ought to be emphasized on.
There are several other points and areas of interest that God willing will be
dealt with in the future.
Dr. Aliakbar Arabmazar
******
Draft of the budget law
By Dr. Mohammad Tavallol
The draft of the budget law for the Iranian
year 1385 (21 March 2006-20 March 2007) has been recently submitted to the
Islamic Consultative Assembly (parliament) for its approval and presently is
under a hot deliberation in that forum. Our discussion about the draft will
consist of two parts: looking at main figures of the budget and review of its
tax regulations.
Principal figures of the budget
The budget of the coming year is
divided - like previous years – to two parts. The main part
of it (more than 70% thereof) is allocated to state-owned corporations and
banks. This part of the budget amounts to 1.386 quadrillion Rials (one
The amount of IR 629 trillion (total
figure of the general budget) is composed of the following components:
|
Revenues |
IR |
239.5 |
trillion |
|
Transfer of capital assets |
IR |
167.8 |
trillion |
|
Transfer of financial assets |
IR |
182.9 |
trillion |
|
Assigned revenues |
IR |
38.8 |
trillion |
|
Total |
IR |
629 |
Trillion |
To the first figure (239.5) we shall
refer later. As for the second amount (167.8), main part of it relates to the oil
revenue, which amounts to 165.2 trillion Rials. The next title "transfer
of financial assets" consists of a few components, the most important of
which is specified as "from the balance of the foreign exchange
reserve" and amounts to IR 147.1 trillion. The reserve so designated is
also related to the oil revenue.
The remaining items, which are
relatively small, are the following ones:
Figures in Iranian trillion
Rials
|
Revenue from privatization of state
companies |
16.4 |
|
Domestic and foreign loans |
13.4 |
|
Amounts to be refunded from the
previous year's payments |
5.3 |
|
Amounts to be collected as the
principle of granted loans |
0.7 |
Revenues
Let us go back to the amount of IR 239.5
trillion namely the first item of the above figures. It is composed of the
following incomes:
Figures in Iranian
trillion Rials
|
Tax revenue |
166.2 |
|
Income to be derived from the
ownership of the government |
50.3 |
|
Income from sale of goods and
services |
8.6 |
|
Amounts to be collected as fines
and damages |
2.7 |
|
Miscellaneous incomes |
11.7 |
|
Total |
239.5 |
As for the first figure, it should be
noticed that a part of the tax income has been transferred to the assigned
income. That amounts to IR 683.7 billion. Thus the total amount of tax revenue
will be 166.85 trillion Rials. Nearly one third of it (IR 55.7 trillion) will
be the corporate tax of public juridical persons (companies and banks). Close
to 48% of this last amount (IR 26.13 trillion) is titled as "tax on oil
turnover". To understand it, we have to have a look at the part
"E" of the Note 11 of the budget. It rules that 5% of the value of
the produced oil shall be assigned as the tax on operations of the National
Iranian Oil Company (NIOC) in the budget year, and another 4.5% of the same
source (value of the oil) shall be assigned as the dividend of the said
company. The tax on operations of NIOC as is described here is the same as the
"tax on oil turnover" that was referred to few lines earlier, namely
the same amount of IR 26.13 trillion. So, this amount should be considered as
another part of oil revenue, though is labeled as the tax on operations of
NIOC. It will be true also in case of the aforementioned 4.5% of the value of
the produced oil, which as was mentioned above is titled as the dividend of
NIOC. Both figures are in substance the same as oil revenue. This latter one
amounts to IR 23.54 trillion that when added to the other figure of IR 26.3
trillion, would nearly come to a total of IR 50 trillion.
Another figure of tax income is a
small amount of IR 500 billion related to tax from certain communication
companies.
There are several other taxes
totaling to IR 111 trillion. Some of these are listed below:
Figures in Iranian biillion Rials
|
Corpora tax on private legal
persons |
23680 |
|
Tax on institutions of Islamic
Revolution |
707 |
|
Salary tax |
9010 |
|
Tax on business income |
8690 |
|
Tax on rental income |
1039 |
|
Tax on miscellaneous income |
85 |
|
Inheritance tax |
482 |
|
Tax on windfall income |
14 |
|
Tax on transfer of good will |
1017 |
|
Tax on transfer of goodwill |
332 |
|
Tax on transfer of real property |
1083 |
|
Stamp duty |
3165 |
Several indirect taxes are also
listed in the budget, such as tax on imports, tax on goods and services, tax on
sale of oil products, exit tax, etc.
As it was mentioned earlier, a part
of the public budget (budget of ministries and other government organizations)
is allocated to state-owned companies to cover their losses. So, the net amount
of the public budget will amount to 570 trillion Rials. Now, taking into
account other figures referred to above and explanations given about certain
items of the budget that are in effect components of oil income, it can be said
that around 88% of total amount of the public budget is to be derived only from
two specific sources: oil revenue (362 billion Rials) and tax income (140
trillion Rials). This situation indicates not only the importance of tax
revenue in overall structure of national budget, but it also directs our
attention to the fact that how much more vital the role of tax would be in case
the part of oil in composition of the budget would decline in the future,
either as consequence of unwanted developments, or as a result of deliberate
planning for diminishing the role of oil and putting emphasis of more safe
resources.
Tax regulations of the budget
In addition to tables and schedules
that contain the figures and monetary amounts, the draft of the budget law has
several legal provisions that will be valid during the budget year only. Each part
of these regulations is called a "tabsareh". The tabsarehs are
considered to be notes to a single main article at the beginning of the budget
(even the figures and tables of the budget are considered the attachments of
the same main article). So, we will refer to tabsaras as "Notes" from
here onwards.
Paragraphs "B" and
"C" of the Note 1
As in the previous year, the
state-owned corporations that are supposed to be profitable, are listed in an
attachment of the budget. Paragraphs B and C of the Note 1 of the budget have
required such corporations to make the following payments during the budget
year:
a) Income tax of their operations
during the preceding year (Iranian year of 1384);
b) Income tax applicable to the
budget year (1385). This would mean prepayment of the tax, since income tax of
each year should be paid during the subsequent year. Therefore the amount so
paid will be considered on-account and is to be settled after expiry of the
budget year and examination of final accounts of relevant taxpayers. Basis of
computation of such on-account payments is provided in the budget itself. The
tax must be paid in twelve monthly installments.
c) One additional amount, not less
than 40% of net income of the preceding year, which will be considered as dividend
of related public corporations.
Paragraph "D" of the Note 1
Rate of tax on gasoline is determined
to be the same as in the previous year, namely 30% of the sale price
Paragraph "F" of the Note 1
According to that paragraph, a
special restricting proviso of the
Article 100 of the tax law will not take
effect in case of a certain category of businesses. The proviso stipulates that
taking benefit from the threshold provided for businesses under the law, would
depend on submission of tax return in due time. Now, the said paragraph of the
budget states that such proviso shall not be observed in case of small
businesses.
Paragraph "B" of the Note 2
This paragraph relates to the
provisions of the section "a" of the article 8 on the law on fourth
development plan, according to which the receipts from selling of public
companies shall be deposited with the General Treasury, and then will be
divided between several purposes. A portion equal to 20% of it is to be
allocated to a special account as on-account payment of the tax on transfer of
companies' stocks under the article 143 of the tax law. Now, paragraph B of the Note 1 of the budget
states that such on-account payment shall be considered final and no extra
payment on basis of the said article 143 will be demanded.
Paragraph "F" of the Note
11
Earlier, when discussing about
figures of the budget, we said few words about certain provisions of this
paragraph "F" of Note 11. Now, we will consider the section 6 of the
same paragraph. This section provides that financial and legal relationships of
the NIOC (National Iranian Oil Company), including its tax duties and rights,
shall be exclusively subject to:
1. Regulations of the Direct Taxes
Act (main tax law of the country);
2. Financial and tax regulations of
the budget law itself; and
3. The law concerning the collection
of duties.
NIOC is the most important state
company in the field of oil industry, responsible for management of all
commercial and industrial activities in the same field. It supervises over the
operations of public gas and petrochemical corporations as well. So, the said
provisions of the budget are of considerable importance.
Note 13
Note 13 deals with environmental issues.
Certain green duties, among other measures, are provided therein. One of them
is the imposition of extra duties on vehicles with a life exceeding 10 years.
That would be an extra payment of 15% of the normal duty for each year of
additional life of 10 years of age.
The End
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