Iran News ...


11/04/12

Iranian Government's Plan to Fight Sanctions: Replacing Oil Revenues with Taxes

By Nima Farahabadi, Rooz Online

Following similar remarks by the Iranian finance minister, the president of Tehran's chamber of commerce also hinted at plans to replace oil revenues with taxes in next year's budget.

Speaking to a gathering of investors at the Tehran chamber of commerce, Yahya Al-Eshagh said that next year's budget "places a special priority on taxes, based on which taxes will replace oil revenues in financing the annual budget."

Previously, Iran's finance minister, Shamseddin Hosseini, had said during a nationally televised interview that the Iranian government plans to generate revenue by levying taxes if it faced problems in selling its oil.

In similar remarks, the Ahmadinejad administration's economic spokesperson had talked about "structural reforms in government's revenue stream" necessitated by the "resistance economy," a term used by senior government officials to describe Iran's ailing economy under the weight of international sanctions.

Last summer, the Islamic Republic supreme leader, ayatollah Ali Khamenei had lambasted the Iranian economy's "addiction to oil revenues," calling for a transition to a "resistance economy."

It appears that the remarks by the president of Tehran's chamber of commerce and the finance minister, highlighting the need to levy taxes to supplant oil revenues, are meant to shed more light on plans first floated by the oil minister Rostam Qasemi.

During a visit to the UAE, Qasemi had spoken about a plan devised by the Iranian government according to which the country could be governed without any reliance on oil revenues.

It was during the same visit that Qasemi had also said, "If you continue to add to the sanctions we (will) cut our oil exports to the world."

Although during his visit to the UAE, Qasemi had said that Iran was producing four million barrels of oil per day, the latest report of the International Energy Agency in September placed Iran's oil production at 2 million and 630 thousand barrels per day.

Previously, the vice-speaker of the Iranian Majlis, Mohammad Reza Bahonar, had confirmed that Iran's oil production had fallen to one million barrels per day.

During his televised interview, Shamseddin Hosseini announced the share of taxes as a percentage of government revenue to be 43 percent.

Taxpayers are expected to bear a heavier burden as oil revenues continue to plunge, increasing the strain on Iran's already ailing economy.

In his remarks, Al-Eshagh spoke about "major tax reforms" and revealed that several cabinet-level meetings had been held to discuss such reforms. He also announced that the Ahmadinejad administration had sent a bill to the Majlis containing reforms to the tax code.

According to a study conducted by the Expediency Council, more than 60 percent of economic activity in Iran evades taxation: 40 percent of the economic activity falls under an exemption and the remaining 21 percent are conducted off-the-books.

The study concludes that the government can increase its tax revenues 2.5 times by enacting tax reforms. Currently, taxes account for 7 percent of the gross domestic product. The Expediency Council's report recommended increasing that share to 15 percent of the gross domestic product.

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