3 ways for Iran’s government to increase its revenues

Posted on December 25, 2012

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dadkhah226There are three ways, through which Iran’s government could increase its revenues, U.S. Northeastern University Professor Kamran Dadkhah believes.

The expert was commenting on the issue of Iran preparing its budget for the next year, and what problems it could face, while doing so.

“First, the government can officially increase the exchange rate of the dollar from the current rate of 12250 rials to 30000 rials. This will double the intake of the government from the portion of oil dollars that the government sells in the market,” Dadkhah said.

Second way, according to Dadkhah, would be a move to increase taxes.

“In Iran there are only two effective sources of taxes: customs revenues and payroll taxes especially on government employees,” he noted.

Currently, 40 percent of Iran’s economic sector is tax deductible, and according to Iranian media outlets, another 20-21 percent is considered “underground economy”, that doesn’t pay taxes as well.

“Neither of two methods would be effective options, because the imports are decreasing (lack of oil revenues) and in an inflationary environment increasing taxes on employees would bring only discontent,” Dadkhah said.

“A good portion of what the Iranian government labels as taxes is actually oil revenues renamed as taxes.”

Iranian Minister of Economy, Shamseddin Hosseini said recently that due to imposed sanctions, country experienced a 50-percent reduction in oil revenues.

He also said that the revenue decline is happening because of the changes made to the funding plan of Iran’s construction sector.

According to Hosseini, this year Iran should have gotten some $117 billion in revenues, however due to restrictions and sanctions, the estimated revenues are valued to be around $77 billion.

Hosseini said that in total, Iran’s government is missing some 40 percent of revenues from oil exports, tax incomes and customs.

As for the third source, Kamran Dadkhah said that Iran’s government could borrow from the banking system and increase the liquidity, however “that is expansionary”.

“My assessment is that the budget will be inflationary,” Dadkhah said. “But the Iranian economy will decline because of sanctions and years of mismanagement.”

The deficit for the next year’s budget, and establishment of the budget itself are the biggest concerns right now for the Iranian government, and the parliament as well.

Not long ago, Vice President for Strategic Planning, Behrouz Moradi said that the budget deficit has been chronic in Iran, adding that there will be deficits and lack of liquidity in the upcoming budget.

He said so that budget deficits would not affect Iran’s economy, the next year’s (1392-Iranian year begins on March 21) budget must be less dependant on oil revenues, and it also has to be contractionary.

Some experts however believe that the upcoming year’s budget will be hard to make contractionary, becase the budget data is far from transparent, and during the last 5-year development plan Iran’s government took a different turn, which in turn, increased expenses.

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