Iranian citizens are not paying direct taxes, but tax payment is like a bargain between two persons. The taxpayers and collectors, who are usually representing a state-run body, bargain until they agree over a figure. Therefore, tax revenues in Iran are low due to the following six reasons.

1. The organization in charge of taxation in Iran is relatively traditional. Although it should do its important part in promoting social justice by collecting taxes in proportion to individual incomes, information available to it is, unfortunately at a minimum. A university professor wondered when his family was not aware of his true income, how tax authorities might be able to exact an accurate tax on his income.

Do tax authorities know about all economic activists? Is it aware of financial turnover of all economic sectors? Has it moved to make its policies independent of those of the government? Finally, is it really aware of how much people earn? Figures released on gross domestic product and collected taxes show that the organization does not fulfill its mission properly.

Tax authorities should move to collect information on economic activists in cooperation with other organizations, especially informatics sector of the country. Depending on self-declaration system is due to inability to collect required information on economic activists.

2. While paying tribute to perseverant staff of the tax collecting bodies, it should be admitted that the laws according to which they work are weak, or they are not serious enough in enforcing laws, or sometimes they move in the opposite direction. For example, while annual rent for a very small shop is higher than 10 million rials, there are still flats, which are priced by tax authorities at 50 million rials and even five million rials and it seems that this is aimed at tax evasion without evoking a suitable reaction from tax authorities.

3. Government’s dependence on oil revenues, which has made it needless of tax revenues, has marginalized the tax organization. In other words, the government only pays attention to that organization when it needs to collect taxes from economic activists. Lack of serious attention by the government to this issue is widening the existing gap between the poor and the rich which is against the principle of social justice.

4. Inability of tax authorities to identify people’s incomes which has paved the way for tax evasion has turned the Iranian economy trade-based. Annual proceeds through trade are very high, but they are paying a small tax. While a small shop in traditional bazaar of Tehran is rented out for about 200 million rials per year, its tenant should earn, at least 5 percent higher than rental, so that his business would be profitable. But is the amount of tax which is paid by him proportionate to his earning? Inability of tax authorities to collect proper taxes from trade sector has, on the other hand, weakened the industrial sector.

5. A major reason which is keeping tax revenues down is domination of a state-run economic system. It is regrettable that despite high revenues of some profitable state-run companies, no tax has been considered for them in the Budget Act of the current Iranian calendar year (started March 21, 2006). That is, some big commercial companies which gobble up big chunks of the state budget are paying no tax.

6. The government should levy tax on any legal and recognized income. Not only the government is unable to identify incomes, but also in most declarations, incomes figures are given too low. However, the government’s inattention to some incomes on which tax should be levied is also surprising. Estate tax law is implemented incompletely while income and property taxes are also collected ineffectively.

Another point is that the only case where the government exacts its tax directly is income tax levied on civil servants which is also dubious from the viewpoint of religious norms. The government is expected to reduce dependence on oil revenues and increase tax revenues, so that some people could not become richer and richer by evading taxes. Inattention to this issue will widen the gap between the government and the Majlis (Parliament) and will undermine government’s legitimacy.

Tax is a tool at the hands of the government for just distribution of incomes and plays a moderating role in distribution of wealth. The most important factor which may lead to the realization of social justice is taxation and as long as taxes have not been organized, we cannot be hopeful about bright prospects for domestic economy. Painstaking enforcement of tax rules in every society will not only reduce the gap between social classes but also reduce inflation.

In many developed and even developing countries, about 90 percent of government’s current expenses are made through taxes while the share of taxation in Iran’s budget has stood at only 25-35 percent (about 120,000 billion rials) during the past 10 years. According to statistics, taxes account for the lion’s share of the government revenues in industrial states. The figure is 97 percent for the United States, 94 percent for Austria, 91 percent for Australia, and 93 percent for EU member states. In our country, profits earned through speculative activities such as dealing in land is more than production because no specific tax has been considered for such activities. The main solution is to levy value-added tax. In Britain, for example, price of a plot of land is determined upon selling or purchasing that land and value-added tax is exacted accordingly. In this way, there is less willingness for profiteering and government’s revenues increase.

Another problem which can be solved through assessment of past performance of tax authorities and availing of relevant experiences is the issue of tax exemptions and tariffs. Wise use of this powerful lever will not only help the government to develop domestic industries but also greatly increase tax revenues.