Iran Moves to Tax its Way Out of Crisis

By Maysam Bizær, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

Facing oil slump, Iran moves to tax its way out of crisis

Amid warnings by some experts of the possibility of a further slump in oil prices in 2016, crude oil prices briefly hit 12-year lows this week, selling for less than $30 per barrel.

With the imminent lifting of Western sanctions on Iran over its nuclear program, the oil market is anticipating an inflow of Iranian crude in coming weeks. Amid these anticipations, there are also speculations that the already oversupplied market could see prices drop to as low as $20 due to a potential price war between exporters bent on keeping market share.

Iran is in a relatively good position in terms of oil dependency. For instance, in response to the sanctions, the Iranian government initiated efforts to reduce such dependency by focusing on expanding other sources of revenue. Among these measures was the emphasis on the export of non-oil goods, such as the output of the country’s mining and petrochemical industries, to make up for much needed revenues.

These efforts appear to have had effect. On Jan. 5, government spokesman Mohammad-Bagher Nobakht told reporters that the dependency of next year’s budget (March 20, 2016-March 20, 2017) on oil revenues will drop to a new low of under 25% — down from highs of nearly 70% only a decade ago.

Another measure the government has been taking is to increase tax revenues. Despite the economic advances Iran has made over the past decades, the country’s economy suffers from an underdeveloped tax system, and financial transparency remains a challenge. Indeed, tax revenues in Iran only account for less than 7% of gross domestic product. However, it should be noted that September 2015 reports said the government’s tax income had exceeded oil revenues for the first time in nearly half a century.

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