Higher Tax Collection In Iran Compensating For Lost Oil Revenues

Iran’s government is supposed to double tax collection this year to compensate for lack of oil revenues, putting pressure on businesses that prefer to emigrate.

President Ebrahim Raisi’s hardliner government, that has so far refused to reach an agreement in the nuclear talks with the United States that would lift oil sanctions, has been insisting on collecting more taxes to bridge a budget deficit that is estimated to be at least 50 percent.

Aftab News, a relatively independent website in Tehran, said Wednesday that to compensate for lost oil export revenues the current budget calls for collecting 5.26 quadrillion rial in taxes, (that is 15 zeros).

That is hard to calculate in US dollars since there are a variety of exchange rates in Iran, but the sum is in the neighborhood of $20 billion. That might not seem like a big amount by Western standards, but in rials it is larger than the whole government budget was just three years ago.

Due to a huge fall in rials value, the budget has ballooned from 4.6 to 12 quadrillion rials since 2019.

Davood Manzur, the head of Iran’s tax department recently said that the government has succeeded in collecting 112 percent of scheduled taxes since March 21, the beginning of the Iranian calendar year. The amount cited was around 3 quadrillion rials.

Recently the government has gone after personal bank accounts, saying that if an account has more than 100 deposits in one month totaling to around $1,100, it will be considered tax liable as a commercial account.

Aftab news cited a business leader as saying that Iran has the highest tax collection rate in the Middle East, while Saudi Arabia is establishing tax-free zones to encourage economic growth in non-oil sectors.

While Iran struggles amid continuing US sanctions, with an annual inflation rate of around 50 percent and lack of investments, the growing tax burden is a toxic formula for the private sector.

Donya-e Eghtesad (World of Economy), the best-known business and economy website in Tehran published an article on September 7 about a survey of 40 business leaders and potential about what they thought of the prevailing condition in the country.

An overwhelming majority of 87 percent said they had no clear picture of the future for investments in Iran. Their main concern revolved around decision makers creating “instability”. More than half indicated that they were contemplating to take their capital out of the country, and most have either partially have already moved their businesses to other countries.

A huge exodus of capital to tune of up to $10 billion annually has been taking place, mostly to the United Arab Emirates and Turkey, where Iranians are the largest group of real estate buyers.

The businessmen cited persistent high inflation as a major manifestation of instability, as Iran has been printing money with an accelerated rate since the US imposed sanctions in 2018 after abandoning the nuclear agreement known as the JCPOA.

Higher taxes this year are undoubtedly another manifestation of erratic economic decision making by a government that its own hardliner supporters are now criticizing as inept.

Traditional Bazaar merchants in Tehran and other cities protested in June to the unfavorable economic conditions and specifically to higher taxes.