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WEEKLY NEWSLETTER
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Iran
Index
In the past, Iranian officials had focused on increasing
non-oil tax revenues, particularly through direct taxes on personal
and business income. A major reform of the tax laws in 1967 nearly
doubled direct tax revenues within two years. Additional
legislation in the 1970s had the effect of increasing the
importance of direct taxes, which grew to US$2.5 billion in FY
1976, up from US$156 million in FY 1967.
Like most developing countries that produced oil, Iran had
relied on indirect taxes (customs duties and excise taxes) for most
of its non-oil revenue. Indirect taxes accounted for 72 percent of
non-oil tax revenues in FY 1962, 60 percent in FY 1972, and 45
percent in FY 1976. In FY 1986, indirect taxes fell 12 percent as
a result of a 30-percent reduction in customs duties.
The rapid increase in oil production and oil revenues in the
1970s freed Iranian officials from having to develop the tax
system. As a consequence, the narrow tax base focused on consumers
generally and on the urban, salaried middle class specifically. In
1977 fiscal authorities attempted to reform the tax system. But the
numerous exemptions, particularly those that had been granted to
industries to encourage private investment, presented obstacles to
the continued expansion of direct taxes.
By 1985 government workers were paying a disproportionate
amount of Iran's taxes--nearly three-quarters of all taxes in FY
1984--according to the government. For example, in the last few
months of 1984 about US$16 million was collected from individuals
in the private sector and US$510 million (or 76 percent of tax
revenues) from government employees.
Taxes were expected to contribute US$15.7 billion to the budget
in FY 1987, an amount 11.2 percent less than that approved the
previous year. In the FY 1987 budget, direct taxes were reduced to
a level that accounted for 46 percent of tax income, while indirect
taxes accounted for 53 percent. Companies accounted for most of the
direct taxes (54 percent). Of the indirect taxes, 40 percent came
from taxes on imports, and 60 percent from consumption and sales
taxes. A decrease in imports resulted in an overall decline in tax
revenue.
The decline in revenue from indirect taxes (such as customs
duties) in FY 1986 caused total tax revenues to fall 1 percent
below the FY 1985 level. The collection of direct taxes
simultaneously increased by 9.5 percent, partly because of a new
option that permitted payment of taxes into a regional development
fund. Businesses paid income taxes at a higher rate than
individuals, and the tax rate on government corporations was higher
than that on private businesses.
Data as of December 1987
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