Author Ayan Ahmed

Blog Value Added Tax in Iran

Ayanahmed1947@gmail.com

Introduction
One of Iran's indirect taxes (VAT) falls under the VAT law, which came into force in 2008, which
applies to the supply of goods and services in Iran, as well as the import and export of goods.
According to Article 3 of the VAT Act, VAT is the difference between the costs for goods and
services presented at a given time and the costs for goods and offers purchased or received
during the same period. Exports of goods and services abroad via official exit points are no
longer subject to tax under this law and taxes paid under these conditions are assimilated to
export invoices and to the files and supporting documents issued by customs (for goods).
Documents will be returned upon receipt. The price of the goods (purchase tariffs and charges
and freight rates) and the import liabilities and prices (customs duties and trade income) are the
basis for calculating the tax payable on the importation of the goods, as indicated in the customs
documents. Rials) in Iranian currency Import tax base.

Concept
The share of taxes from financing sources in the Iranian economy is 40% at best, but 17% at
worst (2007 to 1981). On the other hand, the import tax, which accounts for 30% of US income
taxes, is largely based on oil revenues. Despite the priority given to tax reforms in recent years
and the reduction of the economy's dependence on oil, we have seen a decline in the tax yield on
total revenue, thus reducing the profit/profit ratio and the tax rate to half of total sales. . In 1979-
1981. The low share of after-tax revenue from domestic tax sales is a structural problem with a
tax base. Current research examines the relationship between value added tax and the size of
modern and productive government in the Iranian economy. Barring other factors (such as the
size of the whole economy), if the size of government is measured using only the total cost tool,
the full-scale job is not done. . This is because as US general rates increase, other monetary
factors such as personal benefits, taxes, general products, and population also increase. The
medical cost of the above estimate has been introduced considering the relationship between
the relevant government expenditure quotes and various key factors. Therefore, the charges
have to be weighed against certain macroeconomic factors to determine the specific duration of
the public sector (Dadgar, 2013; 209). This study applies the task to gross domestic product
(GDP). Two hypotheses have been proposed in this regard:

1. Value-added tax increases the ratio of the President's cutting-edge spending to GDP.
2. The value-added tax reduces the President's construction cost ratio to GDP.

Tax Law and Regulation

The Direct Taxes Act, passed in 1987 and last amended in 2015, is the most important regulation
on direct taxes in Iran. The value-added tax law, authorized by the Islamic Consultative Assembly
in 2008, is another important tax regulation in Iran.

It should be noted that both Iranian and foreign criminal organizations are subject to the same
tax regime. This method allows foreign traders to benefit from the tax breaks and exemptions
available to Iranian citizens.

Tax structure in Iran

Iran's tax structure of the Iranian tax system, such as the low ratio of taxes derived from GDP and
wealth, as well as the tax burden on corporations in indirect taxes, indicate that Iran's tax system
is inadequate. Comparison of company tax and profit tax reveals imbalance, injustice and
inefficiency in profit tax collection. It should have all the benefits of the economy. Despite their
high profits they do not pay their taxes and tax evasion on livelihood is widespread and common.
The most important reasons for tax evasion are the lack of tax culture in the society, lack of
complete data transition and lack of oversight. Information systems, lack of scrutiny in
government, income inequalities, powerful social deficits by people who choose how to make
money. In most international places in the world, income tax is based mainly on the tree's base,
character income (taxes on general income), company tax and payroll tax.

In IRAN's economy, the share of taxes from funding sources is 40% in the best case, but 17% in
the worst case. (Between 2007-1981). On the other hand, import taxes, which account for 30% of
US tax sales, are largely dependent on oil revenues. Despite the priority given to tax reforms in
recent years and the reduction of the economy's dependence on oil, we have seen a decline in
the tax return on total revenue, thus reducing the profit - to-profit ratio and direct tax ratio to half
of total sales. In 1979-1981. The low share of post-tax revenue from country sales indicates the
problem with the construction of the tax base.

Types of VAT Tax Bases

There are three types of VAT basis, namely:

GNP type (product type)

In this type of VAT, all final goods and services produced and purchased within a specified period
are taxed. This means that both capital goods and customer goods are taxed; However, tax
credit is not given for the purchase of capital goods used in a commercial enterprise. Only
intermediate inputs are removed from the base. The entire tax burden is borne by the capital.

NNP Classification (Income Type)

Excluding intermediate inputs and economic depreciation. As used in the for-profit.

Type of consumption
It does not contain intermediate inputs and funding objects. Aadhaar is similar to Aadhaar used
in intake tax (VAT equivalent to retail sales tax in terms of revenue collection).

Audit of Iran’s fiscal system and taxes

Theoretical basics
Civic-based theories: These are primarily based on the idea that government size will increase in
response to the needs of residents. Wagner's concept is one of the oldest power development
theories. They examined the cost data of several developed countries and concluded that the
share of the public sector in GDP was increasing. First, he noted that monetary development
requires criminal infrastructure. Second, increasing urbanization necessitates raising
government prices.

Third, public goods have a higher earning potential. Eventually, he concluded, public space would
expand as actual per capita income increased. Although Wagner's idea was well understood by
the authorities, it depended only on the volume of demand, so the supply sector was abandoned.
As central-profit and low-income citizens make up large sections of society, it is necessary to
raise government to meet the majority demands of the Assembly. Because, on the one hand high
tax charges; And an increase in public quarterly expenditure, alternatively, led to a decrease in
gross domestic product and an expanded authorization rate ratio for manufacturing.

Methodology and data

Assessing financial distribution begins with developing basic income concepts. Provides
generally defined income criteria. In the methodological appendix, we describe in more detail
how these notions of profit were developed for Iran. Basically, we start with market income and
deduct direct taxes and cash transfers to get revolving income. Then we deduct indirect taxes to
get usable income. In our version, there are no subsidies because TSP has replaced them.
Finally, we download affordable transfers (fitness and education), as well as consumer prices
(above-average public spending), from the Internet to calculate the final income. Theoretically,
the evaluation of the marginal contribution asks what is the distribution of income in the absence
of tax 14 (or transfer), the difference between this contractual and actual distribution of income
is the marginal contribution to this tax (or transfer).

Error Correction model estimation

The consolidation of a number of financial variables provides a statistical basis for the use of
error correction models. Main The reason for this mode is that it relates rapid changes in
variables to long-term equilibrium values. Patterns are, of course, simple semi-adjustable modes
in which the enduring remnants of a relationship are placed over a long period of time.
Evolutionary equilibrium is the rate at which a long-term load is reached as well as an effective
force on if the signal of the error correction coefficient is negative (it is the estimated miles), it
indicates the speed of the error The trend of improvement and long-term stability. This
coefficient indicates which variable is based on which volume Adjusted imbalance for each
period approaching a long-term relationship. The modules in each model are good sized,
ensuring compression of the variables with a terrible mark. The coefficients of the two methods
that reflect the model adjustment speed are substantial, which are higher and inclined towards
adjustment. It shows 0.92649 and 1 for first and second term. The short-term and long-term
coefficients are the same and the shocks applied to each model are highly adjustable over a
rapid time period in the long run.

Taxation of Small Traders

To tax small buyers, different options are available to suit a specific situation: Most countries
have a minimum turnover level. Companies that sell below this limit are exempt from VAT on
income, but receive no input credit. Alternatively, the minimum tax should only be levied
according to a number of criteria such as the size of the establishment or the expected income.
Purchases can be made without a credit score, but a small tax value may be added to gross
income. Small traders may want to impose a higher tax on their purchases, but not on their sales.
Despite their small business, some sectors are easy to tax.

Results
The sensitivity index was developed to determine the impact of inflation on the imposition of a
10% cost-sharing tax on 29 sectors of the Iranian economy. Sensitivity index values range from
0.61 to 2. The areas with the highest rate results are 1.2, 5,7,10,11,13,20,22,24 and 28. ( Desk 1,
1a Prices for each region are shown in two and three columns on the counter, before and after
VAT Also, as shown in the third column, the exchange rate in the regions varies from 1% to 10%.
Furthermore, the application of VAT in 11 sectors of the Iranian economy could have a strong
impact on inflation, while the other 18 sectors will experience very modest inflationary effects.

Calculation of Tax Revenue with Exemptions

If stage two (miller) is exempt from tax, then the tax revenue would be by the invoice credit
method:

Tax paid by farmer = t1P1

Tax paid by miller = 0

Tax paid by baker = t3P3

Total tax paid = t3P3 + t1P1,

Which is more than the revenue, t3P3 that would have been collected if no exemption?

By the subtraction method:

Tax paid by farmer = t1P1

Tax paid by miller = 0

Tax paid by baker = t3P3 - t3P2

Total tax paid = t1P1 + t3P3 - t3P2,

Which could be significantly less than the taxes paid if there had been no exemptions? A
northern The innovation is to impose a low-cost tax on industries that would otherwise be
exempt. In this way, the low tax rates extract the input tax credits from the arena while paying
little or no additional tax.

1-Zero Rate Issues

Credit method:

i) If the tax rate (t2) on miller is zero, then

Tax paid by farmer = t1P1

Tax paid by miller = t2P2 - t1P1 = -t1P1

Tax paid by baker = t3P3 - t2P2 = t3P3

Total tax paid = t3P3 - t1P1 + t1P1 = t3P3

ii) If t1 is zero, then

Tax paid by farmer = t1P1 = 0

Tax paid by miller = t2P2 - t1P1 = t2P2

Tax paid by baker = t3P3 - t2P2

Total tax paid = t3P3 - t2P2 + t2P2 = t3P3

iii) If t3 is zero, then

Tax paid by farmer = t1P1

Tax paid by miller = t2P2 - t1P1

Tax paid by baker = t3P3 - t2P2 = - t2P2

Total tax paid = - t2P2 + t2P2 - t1P1 + t1P1 = 0

Zero rating at the first level doesn't change much but effect the chain as some increase or
reduce at stage

Zero Rating with Subtraction Method

Only the value added at particular stage that is zero rated is free from tax.

i) If t1 is zero, then

Tax paid by farmer = t1P1 = 0

Tax paid by miller = t2(P2 - P1)

Tax paid by baker = t3(P3 - P2)

Total tax paid = t3 (P3-P2) + t2 (P2-P1).

ii) If t2 is zero:

Tax paid by farmer = t1P1

 Tax paid by miller = t2 (P2-P1) = 0

Tax paid by baker = t3 (P3-P2)

Total tax paid = t3 (P3-P2) + t1 P1.

iii) If t3 is zero:

Tax paid by farmer = t1P1

Tax paid by miller = t2 (P2-P1)

Tax paid by baker = t3 (P3-P2) = 0

Total tax paid = t2 (P2-P1) + t1 P1.

Inflationary Effect of VAT

It is sometimes argued that the VAT has a significant inflationary impact. To examine the impact
of VAT on fees, it is necessary to understand that many countries generally tend to finance
government budget deficits by increasing cash supply through printing. of foreign currency

M = money supply

V = velocity of money supply

T = number of transactions in a year

P = price level,

Then:

MV = TP

Even if V remains constant, the rate stage P rises every time M rises because of cash printing.
When charges are at stage A, VAT on the price of five% is added at time t*. In this situation, a 6%
boom in expenses takes place among durations t*-1 and t* as a result of an boom within the
cash deliver.

YP = Income of poor

Yr = Income of rich

CP = consumption of poor

Cr = consumption of rich

Sp = savings of poor

Sr = savings

The rate stage includes point D or, to a lesser extent, point E, depending on the effect of VAT
sales and the resulting effect on cash supply. DE denotes the fee impact as a result of multiplied
revenue and discount within the cash deliver growth.
Conclusion
In the initial edition, the worth brought by the tax constant "Analyzes the impact of tax introduced
tax on the fashionable age quantitative relation. The "cost to GDP" ratio within the first model is
far under in the second model. per the low coefficient, it absolutely was set to usher in price
taxes. Despite the goal of the tax chain, little cash is spent on educators and fitness; In fact, it
prices a great deal less money to chop taxes. Condition Finally, it instructed activating a self-
reporting tax tool to scale back fees for tax distribution. Revenues fell. to scale back poorness
and improve the well-being of low-income people, impact rather than a contemporary
government size, it'd be higher to pay more on welfare values such as magnified tax education
and public health, instead of a tariff-added tax on the scale of the development government. In
addition, the govt. emphasizes the necessity to strictly enforce privatization and personal sector
finance systems additionally as public sector investment to make sure that excise is best utilised
for welfare purposes.

References
http://econrahbord.csr.ir/article_130156.html?lang=en

https://jte.ut.ac.ir/article_63698.html?lang=en

https://egdr.journals.pnu.ac.ir/article_5752.html?lang=en

https://www.sid.ir/en/journal/ViewPaper.aspx?ID=607716

https://ideas.repec.org/a/mbr/jmonec/v11y2016i3p283-303.html