Maliyat
Journal, No. 17, Autumn 1997
IN THE NAME OF ALLAH
FROM THE PRESIDENT
We are
nearly approaching the centennial of existence of new administrative structure
-including modern tax system - in this country. In the course of this long
period of time, the tax administration derived, undoubtedly, precious
experience in discharging its vast and omnibus responsibilities.
The most
eminent part of the knowledge so acquired, would manifest itself in the
expertise of the fisc for recognition, examination and assessment of tax
events.
As a
matter of course, any professional would gradually find effective methods for
performing his job as efficiently as possible. The more the time passes, the
higher skill would be gathered.
This
state of affairs would become deeply rooted, when new generations of
professionals would continuously be in contact with the older generations who
derived significant know - how during their life-work. This situation is
accurately true in case of tax officials who pass their carrier inside the tax
organization, generation, after generation.
The
priceless heritage of the tax administration so gathered is to recognized and
appreciated by the all involved in the task of tax assessment and collection.
Denying the existence or value of such a treasure means nothing except to deny
the observations of the mankind in the course of his log history.
Deplorable
fact, however, is the fact that no efforts have been rendered so far to
undertake researches and deliberations in this respect. To be more specific, no
serious steps has been taken to study current techniques of detecting,
examining and assessing taxable income of the taxpayers. Now-how and skills are
handed down orally through generations, and thus are deprived from improvement
and correction by intellectual contemplation. Studious work in this field is a
prerequisite for r4ectificationand reformation of those techniques and
procedures.
Some
points are worth mentioning for more clarification of the subject. First, the
emphasis must be put on usual methods and techniques adopted commonly by tax
officials in their day-by-day practice. There might always some extreme ways of
action be present in every organization. Such exceptional cases are beyond the
scope of the studies suggested above.
On the
other hand, the study we have in mind, is an overall research on the whole
system of tax assessment procedure. Some isolated cases of such procedure are
occasional examined by certain organs of the tax administration. Among them one
can refer to the supreme council of Taxation, in particular, which deliberates
from time to time on some disputes that may include technical and procedural
issues. Such scattered deliberations are also not meant by
Finally,
the suggested research must be concentrated on current and actual methods, and
should not be deviated to the more interpretation of procedural regulations,
although such regulations are also to be taken in consideration while analyzing
the living structure of techniques and methods.
Dr.
Aliakbar Arabmazar
Tax News
PREPAYMENT FOR FUTURE TRANSACTIONS
Companies
producing automobiles, as well as those producing houses and buildings,
conclude - in most cases - contracts with their customers for delivery of cars
and houses in the future. They demand the buyers to pay certain percentage of
prices in advance. The prepayment so effected is compensated for in two ways.
Firstly, an annual interest of20 to 24 percent is paid to buyer each year up to
the date of final transfer of can or building. Secondly, a discount is also
granted to the buyer on prices of the same items.
The
Supreme Council of Taxation (SCT) which in the highest organ inside the
Ministry of Economic Affairs and Finance for reviewing and delivering opinion
on taxation affairs, was asked to render its view on tax ability of the
interest and discount so granted to the buyers of future transaction described
above.
It is
noteworthy that the interest paid on money is subject to taxation under the
Direct Taxation Act, except for the interest on saving accounts held by the
Iranian banks.
The SCT
reviewed the matter in its Plenary Board and decided that both payment under
consideration (interest and discount) are in essence discounts on sale price of
relevant cars and buildings. Thus, they could not be taxed under the
regulations pertaining to taxation of interests and similar payments.
Therefore,
the buyers will be from taxation in case of the interest and discount so
granted to them
Tax File
Number (
This
procedure would facilitate the task of the fisc in the field of recognition and
findings much taxable transactions as possible.
Taxpayers
failing to comply with the duty of registration and taking
On the
other hand, the Board of Settlement of Tax Disputes (BSTD) is vested - under
the Iranian Direct Taxation Act - with the power to receive and review all tax
claims and disputes.
A
question was raised as to whether the taxpayers or tax officials could refer
disputes about the judicial prosecution in respect of
Further
actions, beginning from reporting the case to the Minister, up to the filing
and following up of the petition with criminal courts, shall be taken by the
said department.
TAX STATUS OF ALAVI FOUNDATION
Before
the Islamic Revolution of 1979, there existed a foundation that used to handle
apart of the governing dynasty's properties. After the revolution, the said
institute was renamed as Alavi Foundation.
Another
foundation was also established after the victory of Islamic revolution under
the title of "Foundation of the Oppressed People". All the properties
of the deposed dynasty -including the Alavi Foundation - were transferred to
the Foundation of the Oppressed. The latter foundation enjoys certain tax
privileges under the current regulations. Since status of the Alavi Foundation
was not clear for task offices, and they were not sure if theta privileges of
the Oppressed Foundation would extend to the properties and operations of the
former foundation, or not.
A new
circular of the Finance Ministry deals with this subject and rules that the
regulations concerning the tax status of the Oppressed Foundation covers all
and every parts of its possessions, including the Alavi Foundation.
VALUATION OF FOREIGN CURRENCIES
Foreign
contractors working for Iranian employers, usually receive all or a part of
their remuneration in currencies other than that of the host country.
Meanwhile,
all taxes in this country - including those of the foreign contractors - are to
be assessed and calculated in national currency. But foreign exchange
facilities granted to applicants for their transactions in non-national
currencies are not unique. There have been different rate of exchange
prevailing during the recent years, and various names have been given to them,
like floating rate, exportation rate, etc.
Taking
into account such unequal and varied situati8ons, one could naturally become
confused about the assessment of the income tax; if there have been a case of
foreign exchange element constituting whole or part of the taxable income of
the taxpayer.
The
Ministry of Economic Affairs and Finance treated the issue in a special
circular letter. It has been said in the circular that we have to deal with
each case according to the conditions of allocation of foreign exchange to each
taxpayer. The rate of exchange used at the time of such allocation must be
taken as the basis of calculation of foreign currencies received by the
contractors under discussion, and their income should be assessed in Iranian
Rail based on the same specific rate.
COMPUTERIZED BOOKS AND RECORDS
Sometime
ago the Ministry of Economic Affairs and Finance authorized the companies and other
taxpayer to keep their books and records in computerized form, provided that
they would inform relevant tax authorities of their intention and would obtain
their agreement in this regard.
As it is
known from the text of a recent circular of the Ministry, some entities
proceeded with computerization of their records without obtaining the agreement
of relevant officials. Some tax assessors, however, did not reject such
computerized books in spite of not having been agreed upon in advance.
The
ministerial circular confirms the action of the tax assessors and declares that
such computerized books and records could not be rejected solely because the
previous agreement of authorities was not obtained.
INHERITANCE TAX AND BLOOD MONEY
Under the
Islamic Criminal Law, a person convicted of murder shall be subject to reprisal
(qisas) and is to be executed, provided that the heirs of the murdered person
would deposit certain amount of blood money, to be paid to the heirs of the
murderer afterwards. As far as the inheritance tax of the murdered is
concerned, the question is that the blood money so paid can be deducted from
his taxable estate or not.
The
Supreme Council of Taxation examined the same question and rendered the
following opinion^ Since the regulations of the Direct Taxation Act do not
provide any rules for deduction of the blood money from the murderer's estate,
such payments are not deducti8ble for assessment of the inheritance tax.
MINISTERIAL CIRCULAR AMENDED
As it was
mentioned earlier in this journal (no 16, Autumn 1997), a circular of the
Finance Ministry ruled on some provisions of "The Law concerning to
payment of service Bonus to and a part of the Urgent Expenditures of the Civil
Servants". The circular differentiated between the various kinds of those
payments and considered some of them tax exempted, while the others were
recognized as subject to taxation.
Later,
the Supreme Council of Taxation (SCT) submitted a report on the same subject to
the Finance Undersecretary for Revenue and observed that some amendment i9n the
circular might be necessary. The Undersecretary referred to report to the
Plenary Board of SCT for consideration. The Board reviewed the matter and
decided that none of the payments under the aforementioned law are taxable, since
they are in essence a kind of compensation for the urgent expenditures born by
employees at occasions like marriage and death.
Regulations
about the stamp duty are provided under the Chapter 5 of the first Section of
the Direct Taxation Act (DTA). Article 50 of the same chapter stipulates that
the Ministry of Economic Affairs and Finance can receive cash money as stamp
duty if it finds such course of action appropriate.
Then,
affixing tax stamp would not take place and the relevant tax office shall issue
official receipt against the cash paid by the taxpayer.
Attorneys-at-law
and other agents, who are authorized to plead the cause of people and entities
before judicial or non-judicial tribunals, are among the taxpayers who have to pay
stamp duty in the form of affixing stamps on instruments verifying their power
of attorney.
Regulations
concerning stamp duty of this particular category of taxpayers are arranged
under the Article 103 of DTA. Paragraph 4 of the said article pertains to
advocacy on financial disputes before non-judicial specialized tribunals. Among
them one can refer to administrative tax tribunals and those responsible for
disputes regarding municipal duties.
A new
circular of the Finance Ministry deals with the aforesaid paragraph 4 of
Article 103DTA. Based on the power given to the Ministry under the Article 50,
DTA (as described earlier), it has been said in the circular that hence forward
the relevant offices can accept cash in case of disputes and claims raised by virtue
of the said paragraph 4, Article 103.The authorization so given is restricted
to cased of impossibility of affixing and canceling of tax stamp on relevant
instruments.
LEASE WITH OPTION TO PURCHASE AND LEGAL SEAT
Lease
with option to purchase is a lease which the lessee has the right to purchase
the property. Agreements of this kind are mostly concluded between banks and
their clients. The bank pays price of the property and is considered to be the
legal owner of it. The client, on the other hand, becomes the lessee of the
property with the right of purchase of the same. In essence, however, he is the
borrower of the money paid by the bank, and the monthly rent he pays
constitutes the installments of the sum so borrowed. The option of purchase will
run when the installments are paid. Then the property will be transferred
legally to the client.
Meanwhile,
the residence of taxpayers is the bases for imposition of tax, as well as for
the jurisdiction of tax offices around the country. Every tax assessor is
allocated certain geographical districts, inside which he has to perform his
duties. This overall rule, however, is apt to exception in certain instances if
the Finance Ministry so decides. Among those instances one can mention a case
where the place of major activity of an entity is different from its center of
administration. In such cases the Ministry may refer the relevant tax file to
the tax office of the place where that major activity is performed.
As far as
the case of lease with purchase option is concerned, the property under the
lease might be located outside the area in which the administrative center of
the bank is situated. Since the final transfer of the property to the lessee,
requires payment of taxes, it must be decided that which of the two tax offices
are competent to receive the tax: that which has jurisdiction over the area
where the legal seat of the bank is situated or the other one with jurisdiction
over the location of the property?
A
circular of the Finance Ministry rules in favor of the latter solution, and
states that the tax office of the region where the property is located will be
the proper authority for taxation.
ABSTRACTS OF PERSIAN ARTICLES
Editorial
Foresightedness in the field of taxation is the theme of the articled
titled "Trends in Anti-Avoidance". This very interesting article was
written first by Dr. David Williams and published in the Bulletin for
International Fiscal Documentation. The author attempted to address future
trends in tax avoidance. The scope for anti-avoidance depends - according t6o
him - on laws of fiscal dynamics, which he described in detail. A Persian
A
Comparative Study: Indirect Taxes in
This is the first study on indirect taxes provided by this journal. The
article deals in particular with the share of the indirect taxes in overall tax
revenue of the country in comparison with many countries of the world. Certain proposals
are given by the author for improvement of the situation.
Tax
System and Official Accountants
The role the official accountants can play for improvement of the tax
system in the main focus of the article. A brief history of the profession of
the official accounts in the world, as well as in
New
Provisions on Salary Tax
As we mentioned earlier in this journal (No. 17, page ) The Article 84 and its Note were amended
recently with the aim of raising the level of the threshold of salary tax as
well as for equalizing the tax states of all employees and workers. A detailed
schedule covering the amount of taxes accruing to different levels of salary
income was prepared and provided by a reader of the journal which has been
printed in the Persian section.
Indicia
for Assessment of Income Tax
Indicia are circumstances which point to the existence of a given fact.
They denote facts which give rise to inferences.
In the real of taxation, Indicia for inference of taxable income are
enumerated by the law. They are - according to Article 152 of the Direct Taxation
Act (DTA) - the facts such as annual purchase, annual sale, gross income, and
the like.
The author analyzes these factors, presents critical observations on
shortenings of the laws and makes certain suggestions in this field.
Taxes
on Construction Developers
Construction developers are subject to payment of tax on their business.
At the same time they have to pay certain taxes on transfer of the properties
built by them, but this latter tax is deductible from their business tax.
Construction Developers are good money-makers in this country, as several
rulings and ministerial circulars have been issued for assessment of their
taxable income. This subject is deal with in the article.
TAX
EXEMPTION OF INDUSTRIAL AND MINING COMPANIES
Article 132 of the Direct Taxation Act as amended on April 1992,
provides for tax holidays of 4, 6, and 8 years with regard to industrial and
mining entities, for which the exploitation permit will be issued from the date
of adoption of the amendment. Several ambiguities were raised about this
article, that cause3d the Finance Ministry to issue two circulars, the second
of which was, in effect, an amendment to the first one. Some taxpayers,
however, were not satisfied with the Ministry's Rulings and filed complaint
with the Court of Justice Administration. The Court held the view of the
taxpayers, and ruler against the circulars. The author reviews these
developments and expresses his opinion on the commencement dare of the relevant
tax holidays.
Regulations
and Rulings
The texts of latest laws,
regulations, and opinions of the Supreme Council of Taxation are reported in
the Persian section of the Journal. A part of the same is presented in
Tax
Glossary
Several tax terms and expressions are presented and defined in each
issue of Maliyat journal. Detailed explanations follow the definition of the
terms.
Tax News
around the World
A number of international tax news is selected and presented to the
Iranian readership.
Comment on
an Article
Our readers are invited to furnish
The End