Tehran, May 14, IRNA-Iran's tax revenues will reach rls 20 trillion (about $2.5B) by early next year (to start on March 21, 2006) once the value-added tax (VAT) bill goes into effect.

Head of Iran's Taxation Affairs Organization Gholam-Reza Heidari Kord Zanganeh said here Saturday that Iran is one of the top five among a group of 120 states to select the lowest VAT rate.

Zanganeh said that usually, VAT rate in most states ranges between 15 to 25 percent but it is seven percent in Iran.

He said implementation of the VAT system would prevent covert economies and black market.

To prevent inflation, Iran's Taxation Affairs Organization has exempted from the VAT list the goods that are used by the low income strata.

He said imports and marketing of a number of goods and services such as unprocessed agricultural products, cattle and poultry, sea food, honey bees, silkworms, fertilizers, pesticides, flour and different kinds of breads, meat, sugar, rice, beans, soybeans, milk, cheese, cooking oil, powdered milk, as well as the print, writing and newspaper papers, would be subject to the excise duty concessions.

The focus will be placed on health, education, housing and tackling unemployment.

The VAT system would promote investment and give a boost to capital markets by levying tax on the turnover of import and export of goods and services.

Under the scheme, tax payers would have to pay excise duties on their income once the finance bill is implemented.

The scheme divides every solar year into six two-month taxation periods, beginning annually in Farvardin (March 20), the first month in Iranian year.

The taxation timetable would however be adjusted to conditions of the tax payers and the cabinet would set the time as deemed appropriate and announce the outcome to the Taxation Affairs Organization for implementation.

Some economists believe VAT cannot be implemented without making necessary preparations.

They warn against improper implementation of such a mechanism, reasoning that it might have inflationary effects.

They say the method should gradually be applied to the national economic system.

However, advocates of the value added tax say it would generate more income for the government, enabling it to cover its expenses.

They say VAT, which is a kind of tax on certain goods and services, will prevent financial corruption and improve taxation system, preparing the ground for the government to collect taxes quickly.

They say enforcement of VAT is a necessity, since it would boost investment and expedite economic development of the country.