Iran Moves to Tax its Way Out of Crisis

This trajectory is widely supported, even in the current, difficult economic climate. “Although increasing taxes during an economic recession would have a negative effect on economic growth and is not recommended, increasing tax revenues through identifying new tax bases is a positive step,” Ali Sadeghien, a university lecturer in Tehran, told Al-Monitor.

Iran’s efforts to maximize tax revenues come at a time when only 40% of the country’s economy pays taxes. Indeed, last month, Ali Tayyebnia, minister for economic affairs and finance, stated that some 43% of the Iranian economy is currently enjoying a wholesale exclusion from paying any taxes. According to Tayyebnia, the government’s low tax revenues stems from the lack of an economic and fiscal database as well as the wide range of tax exemptions granted to a large number of companies and individuals.

Moreover, Ali Askari, the former head of Iran’s National Tax Administration, has publicly stated that some 40% of the economy is legally exempt from taxes, while another 20% is made up of underground businesses that the tax authorities are unable to keep under their radar. Amid the government’s stepped-up efforts to boost tax earnings, it is expected that it will generate more revenues from tax as opposed to oil exports in the next Iranian year.

However, while the focus on tax revenues is broadly welcomed as a great achievement, some experts say it will only be effective if it is lasting. “If the government continues this policy when the prices of oil and gas are high again, then we can say it has been successful,” Sadeghien said. “But if the prices go high again and it loosens its pressure to collect taxes, then we’re back to square one.” Allah Mohammad Aghaee, an adviser to Iran’s minister of economic affairs and finance, told Al-Monitor he believes that the country’s tax regime is miles away from where it should be, but that he remains hopeful about the near future.

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