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Iran
Taxes
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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