A small number of wealthy, elite Iranian citizens and corporations owe the government over US$20 billion in unpaid taxes, a judicial official has announced.
The amount, which converts to 87 trillion tomans according to the official currency exchange rate, represents one-fifth of this year’s government budget and twice the predicted oil revenue for the coming year. It is also equal to 40 percent of unpaid back taxes.
Hasan Darvishian, the head of Iran’s General Inspection Office, made the announcement on Wednesday, December 11. According to him, the total unpaid taxes amount to 210 trillion tomans (over $49.6 billion). Nine trillion tomans (over $2.1 billion) is owed by individuals and the rest by corporate entities. Darvishian did not disclose how many of the 100 entities are actual individuals and how many are legal entities.
His announcement prompted a number of questions. To which years do the unpaid taxes relate? Why and how have these people and companies escaped paying taxes? Was the 87 trillion tomans the estimated tax that they should have paid, or have they escaped paying their taxes by manipulating their books? How were they identified? Have the tax authorities informed the judiciary of their identities? If so, why has the judiciary taken no action? Why has the National Tax Administration done nothing? Why have their names not been published so that the Iranian public is aware? Are the individuals in Iran or have they fled to other countries?
Ahmad Tavakoli, an anti-corruption activist and the head of the NGO Justice and Transparency Watch, was present at the meeting at which Darvishian made his announcement, but there have been no reports that Tavakoli put any questions to the official.
However, some of the answers to the questions are obvious. First of all, Iran is one of the most hospitable climates in the world for money laundering and tax evasion. This is not about the tax deducted from the wages and the salaries of average- and low-income individuals and groups. This is about a paradise for the powerful and the rich, many of whose income is over 20 times the average income. Not only do they pay no taxes, but many of them appear to believe that paying taxes is beneath them.
According to statistics published by the World Bank, in 2017 the share of taxes in Iran’s gross domestic product was less than 7.5 percent. In comparison, the average share of taxes in the global economy is over 15 percent, meaning that in Iran, people pay on average only half the taxes that the rest of the world pays.
In other words, if Iran were a normal country, the government would have a tax revenue twice what it receives now. The gap between Iran and a normal economy is precisely attributible to the taxes that two specific groups fail to pay: the rich and the powerful.
The Rich Get Away with Tax Evasion
Recently, Omid Ali Parsa, the head of the Ministry of Economic Affairs and Finance’s National Tax Administration, stated that in 2018 more than 300,000 Iranians had taxable incomes of over one billion tomans (close to $240,000 at the official exchange rate) but, for more half of them, no tax file is linked to their incomes [Persian link].
Comparing the volume of tax paid by workers and employees with the what is paid by rich groups aptly illustrates the unjust structure of taxes in Iran.
The following chart illustrates Iran’s income tax categories [Persian link]. As the chart shows, the total tax paid by government and private sector employees is higher than the total tax paid by self-employed people, which includes high-income lawyers and doctors. The same is true when the tax paid by government and private sector employees is compared with tax placed on real estate.
A comparison between income tax paid by the government and private sector employees with the “wealth tax” reveals a striking gap, as the chart below illustrates:
This situation is mainly a result of an inefficient and unjust bureaucracy. Weak laws, negligent planning and poorly-performing watchdog organizations allow wealthy and high-income people to evade taxes almost as a birthright. As state-run and conservative media are currently indicating, the deepening of the economic crisis and the sharp drop in oil revenue is likely to result in pressure being applied on wealthy and high-income groups to pay their fair share of taxes. This is a good thing — if it happens — but it is unlikely that the same will be applied to another group: the powerful elite.
Tax Evasion by Institutions Under the Authority of the Supreme Leader
The biggest and the most powerful group of tax bandits are institutions under the command of the Supreme Leader Ayatollah Khamenei — from the Revolutionary Guards’ business affiliates to religious endowments. These organizations control a large part of the Iranian economy but, as ordered by the Supreme Leader, they are tax-exempt. Such exemptions are legal, but the practice is illogical and makes no economic sense.
Furthermore, these tax-exempt entities use this privilege to drive both their state-owned and private-sector competitors out of business.
There are no reliable and accurate estimates of how much taxes these entities should pay but do not because the value of their assets and the contents of their ledgers are kept secret.
On October 6, Omid Ali Parsa, the head of the National Tax Administration, said that 40 percent of the Iranian economy is tax-exempt [Persian link]. If true, in the best case scenario at least half of this 40 percent belongs to these institutions because the tax share of the other exempt sectors — agriculture, culture, arts, and so on — is not very high. This means that 20 percent, meaning fully one-fifth of the Iranian economy, is controlled by these institutions. If, like other state-owned and private entities, they paid taxes, the government could have had more revenue than what it had received from oil when exports were thriving, and this could have worked as an engine of sustainable growth. But not only did it not happen, it is unlikely that it will. The reason is simple: if these institutions are forced to pay taxes they would lose one of their two competitive advantages over state-owned and private-sector business. These institutions are much more inefficient and mismanaged than the government. Power and tax-exemption are the only two advantages they have.
Related Coverage:
Rouhani is Either Lying or Ignorant about Poverty in Iran, 16 December 2019
Who Decided to Raise the Price of Gas in Iran and Why?, November 18, 2019
Is Gasoline Really Cheap in Iran?, November 17, 2019
Who Benefits From the Rise in Gas Prices — The Rich, the Poor or the Regime?, November 16, 2019
Iranians Protest After “Sad but Necessary” Decision to Raise Gas Prices, November 15, 2019
Iran’s Shrinking Economy, October 21, 2019
Employment Figures for Summer 2019: Has it Really Improved?, October 11, 2019
Is There any Hope of Reining in Iran's Runaway Inflation?, May 24, 2019
This Year 57 Million Iranians Will Be Living Below the Poverty Line, May 15, 2019
A Bleak Future for Iran's Job Market, May 3, 2019
Decline in Investment Across Iran After US Exit from the Nuclear Deal, April 27, 2019
Can Iran Survive Record Inflation?, February 25, 2019
Iran’s Unemployment Crisis: Only 11 Million Full-time Jobs, January 23, 2019
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