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Maliyat Journal, No. 20, Summer 1998


In the Name of Allah




The current tax code of Iran was originally approved in about ten years ago. It was organized within the framework of 1965, then in effect in the country. Even the latter had not been founded as a new-born offspring of existing regulations. It was rather a continuation of older tax statutes. Numerous alterations have also been introduced into the different parts of the law during this lengthy period. Various considerations and issues of policy were taken into account in effecting the amendments in question. It seems, however, that less attention has been paid to the objective of maintaining the integrity of the law, as far as the wording and terminology are concerned. In other words, it looks as if it never came to the mind of those initiating the amendments of the law, to enter upon a program for reviewing the semantics of the law. By the expression "semantics of the law" - which we have borrowed from the modern scientific linguistics, - we mean the development of the meaning of the terms used in the law, as it can be understood within the context of various sections of the law. Such a semantic study of the law would reveal the cases of probable discrepancy between the meanings accorded to the same words and terms along the regulations of the law. The very existence of a divergence and inconsistency of this type would harm the semantic integrity of the law.

Shortly speaking, it does not seem likely that a deliberate step of this kind being ever taken with regard does exist to support our conclusion. First, no precedence are at hand in respect of old legislations to show that this sort of securitization of the law being ever effected. Second, as far as the recent developments are concerned, the path followed has been the same as in the past, and no indications could be found to demonstrate the reverse.

Third, and the most important, evidence can be found by studying the text of the law. The cases of inconsistency and discordance of terminology are not very rare. To be more specific, one may encounter words and expressions in the law that suggests certain meanings and implications in an article, while the same terminology might signify differently somewhere else in the law. Thus the words and terms may lose their relationship with the sensual framework constructed in the mind of the reader and compel him to change his mind and accept a new framework irrelevant with the first one, or sometimes overlapping it.

Such is the situation for which we choose the title "semantic disintegrated ness". The discussion presented above is not as mere philosophizing about the abstract matters. It concerns, rather, the rights and duties of subjects of the tax law, namely the government and the taxpayers. The words and terms of the law are not parts of poetic or musical compositions, so that no serious damages would result from their disorganization. They are rather the means of expression of material and tangible rights and obligations of the people. It is worthwhile, therefore, to allocate enough time and resources for the sake of putting such cases in order.


There is no room in this editorial to deal with details and specific examples of the problem. We shall endeavor in the future to touch upon the issue, so that it could pave the path for farther studies in this regard.


Dr. Aliakbar Arabmazar




A Dormant Claim and avoiding Futileness


BY: M.T. Hamadani


The wisdom and prudence call for avoiding fruitless actions that serve no useful purpose. This rationale becomes more evident where the use of public resources is called into question. A new circular of the tax administration embodies this very logic and deals with a unique and unprecedented subject.

The circular concerns a situation where the extent of the taxpayer's annual loss is disputed. Both the tax authority and taxpayer agree on occurrence of loss and lack of net profit during the assessment period. They disagree, however, on the amount of net loss that was sustained in the same period.

A dispute of this kind would have no concrete tax implications, at leas for the time being. To engage oneself in such dispute, therefore, is futile and of no avail, although the potentiality of the issue can not be overlooked. It is conceivable that the same taxpayer may earn net profit from his operations in the future. In this case he will be entitled to avail himself of carry-forward regulations.

Paragraph 12 of the Article 148 of the Direct Taxes Act (DTA) allows the taxpayers to carry the losses of one year over the following years and the deduct it from the taxable income of those years, up to one third of such taxable income. In this suppositional case, the dormant dispute of the past would attain actuality and significance. If the taxpayer should win the case, he would be able to deduct more losses and to pay less tax, while the opposite result would lead to payment of more taxes.

In other words, the claim of the taxpayer lays dormant in the year of assessment, and it is futile to put time and energy to resolve it. As to the future, occurrence of both net profit and net loss is probable. This is the reason behind the logic that requires suspension of the dispute till the potentiality turns to actuality. The same rationale caused the tax administration to issue the circular under discussion. The recommendations embodied in the circular are summarized below:

1. The assessed loss - which is lower than the figure declared in the tax return - should be notified to the taxpayer according to the legal procedure. The taxpayer should be informed by the same notification that he has the right to protest against the assessment within 30 days from the date of notification.

2. If protest is received within the said period, the assessed loss so notified becomes final.

3. In case of receiving the taxpayer's protest, it must be recorded and retained in suspension. The case shall not be referred to the authorities responsible for settlement of dispute. Suspension shall continue until the operations of the taxpayer in a taxable year would show net income, so that the disputed loss (or apart of it) could be carried forward. In this event, the dispute over the extent of the loss shall be considered by the relevant organs for settlement.


Some secondary and side points are also dealt with in the circular:

A. Tax claims filed with appropriate authorities for a review of the challenged decisions, is sometimes handled not by the taxpayer himself, but his advocate or lawyer. In this case certain duties must be paid through affixation of duty stamps. The amount of the duty is a progressive percentage of the tax in dispute. In a claim over the extent of the loss, where no taxes are assessed at all, it is not possible to determine the amount of the stamp duty. So, the circular in question states that no stamp duty is necessary to be paid in case such disputes.

B. The dispute under discussion might not be resolved at the first instance of settlement, in a manner satisfactory to the taxpayer. He may take the case to the phase of reconsideration. The competent body for both, the first and second instances of review is the Board for Settlement of Tax Dispute (BSTD). The protest of the taxpayer shall be referred to another BSTD for reviewing.


At this stage, the taxpayer must pay at least 10 percent of the tax as settled by the first instance BSTD, otherwise his appeal shall be rejected. Since the dispute in question concerns the extent of the loss and no taxes are determined by the BSTD, again it is not possible to calculate any percentage of it. The circular, therefore, declares that no percentage is required to be paid in case of such disputes.


Altogether, the circular under discussion reflects pragmatic attitude. The views expressed are quite commonsensical, aiming at elimination of futile procedures.






"Tax News" in this issue of the journal is devoted wholly to the tax changes in the State Budget Bill of 1988-89.


State Budget of the Iranian year 1377 (1988-89)


The State Budget Bill for the Iranian year of 1377 (March 21, 1998 to March 20,1999) was passed by the parliament on 28 January 1998 and published in the official Gazette on 28 February 1998.


The Bill - which is named the "Budget Law" after being passed by the parliament -contains two parts: detailed budget figures and budget regulations. The regulations consist of 60 Notes appended to a single article that declares the approval of the budget and the sum of main figures of revenue and expenditures.


The "Notes cover various regulations, including those of taxation. The focus of our discussion is on these latter "Notes". The most important notes of this king are summarized below.


Note 2


Note 2 impose certain conditions on government companies and entities for changing the figures of their budgets. The restrictions so imposed include the domain of tax as well. The limitations pertaining to the latter domains are as follows:


Paragraph A


Paragraph A of the Note 2 authorizes the state companies and non-profit entities affiliated with the government to modify their annual budgets under certain conditions and by the consent of the Budget and Plan Organization.


The conditions to be observed by those companies and entities include - inter alia -the following:


Such alterations in the budget should not cause the amount of tax and dividends payable to the government to be reduced below the figures predicted for these companies and entities under the relevant section of the State Budget.


Paragraph D


The paragraph D of the Note 2 is also provided to prevent the reduction of expected amounts of taxes foreseen under the budge. For this purpose, it stipulates certain requirements to be observed in case of state companies, for their taking benefit from the tax exemption accorded under the articles 138 and 172 of the Direct Taxes Act (DTA)


The Article 138, DTA provides that any portion of companies, profit derived from industrial or mining activities shall be exempted from taxation, if the income so derived is allocated to a special reserve for reconstruction, development, or completion of existing industrial and mining units or establishment of new units. The same exemption shall also be granted if the profit of companies would be allocated to a reserve for construction of houses for the companies' employees.

Subparagraph 1 of Paragraph D is pertaining exclusively to the Organization of Reconstruction and Development of Industries and The Companies affiliated therewith. It is a vast and important governmental organization encompassing large number of industrial entities. In case, the Organization and its affiliates would choose to allocate their annual profit to the reserves mentioned above, they could do so if one condition is satisfied: the amount of taxes and dividends payable by them to the government, should not be reduced form the relevant figures foreseen in the budget, as the result of such allocation of profit and consequent tax exemption.


Article 172

Article 172, DTA Comprises Certain Charitable payments by taxpayers to the accounts specified by the government. Such payments shall be accepted as deductible expenditures in determination of the taxpayers' taxable income.


Now, the Subparagraph 2 of the Paragraph D of the Note 2 stipulates that in the case of state companies, such charitable payments should not cause the income tax and dividends payable to the government to be reduced from the relevant figures expected under the State Budget.


The condition so imposed on state companies seems not to be felt as a real restriction by them, since it has no effect other than to divert resources from charity to taxation.

Worth mentioning are also the following points with regard to the Note 2:


1. The limitations provided under the Note 2 are all pertaining to the public corporations. They reflect the negative attitude towards these entities, which is shared by majority of people, including the legislature. The companies are blamed of lucking efficiency and profitability. In fact they absorb a lion share of public resources, without generating comparable results.


2. The restrictions so defined are repeatedly mentioned under the Note 2 of the Budget Law for many years. The case being so, it seems more appropriate to include them in the tax law, instead of re-including in the Budget Law again and again.


3. Two big state - owned companies, namely National Iranian Steel Company and National Company of Iranian Copper Industries are treated completely in different manner, which shall be defined when touching upon the Note 58.


Note 8

Paragraph D of the Note 8 relates to contributions of natural or juridical persons or "popular sectors" to the construction or completion of educational, cultural and similar "atmospheres", as well as the payment made by them for construction of roads, bridges and the like. Such contributions shall be deducted from their taxable income, in computation of their income tax liability. No construction duties shall be imposed on such activities and the transfer of the "atmospheres" to the relevant authorities shall also be exempted from taxation.

The term "atmosphere" as understood in the context means the buildings and their appurtenances and adjacent grounds. The following points, never the less, are ambiguous:

- The term "popular sector" is not quite understandable under the Iranian law. The terms natural (or real) person and juridical person, on the contrary, are well understood. The "popular sector" as understood by the man in the street means considerable number of people who may undertake to do something for the sake of the society. If we take the term to mean in this way, such a creature might not constitute a "taxpayer", so that we could allow it to treat its contribution as deductible expenditure.

- Although it is mentioned in the law that the transfer of completed "atmospheres" to the "relevant authorities" is exempted from taxation, but there is not any mentioning which would oblige people to transfer such buildings to the government.

Nor is there any hint to the linkage of deductibility of expenses to the transfer of the "atmospheres".


Note 45

The first paragraph of this section regards the provincial revenues. It introduces two important tax provisions as well. They are as follows:


1. The Ministry of Economic Affairs and Finance is called for assigning the task of assessment and collection of taxes in respect of all companies and production and service units established in provinces, on tax directorates of relevant provinces. Payment of such taxes in any place, other than the location of establishment of factories, has been prohibited.


To grasp the point of this subparagraph, one has to remember that the competent authority for receiving tax returns of companies and assessing their tax liability is the tax office of the district, where the legal residence of the company is located (article 110, DTA). Legal residence under the Iranian Commercial Law is the location where the company is officially registered. There are considerable number of companies that are registered and have their control office in one city (mostly in capital city Tehran) while factories belonging to them situated in another town. The implication of this state of affairs is that such companies have to pay their taxes to the tax directorate of the city where their control office is located, while their economic activity (or a considerable part of it) is performed somewhere else.

The logic behind the provision provided by the Note 45 is to revert this and enable the local tax authorities to tax business located within their jurisdiction, not withstanding where they are legally registered.

The wording of the provision is not void of ambiguity. The term "place of establishment of company", for instance, is not a familiar phrase under the Iranian law. We have titles like "place of registration of companies", "residence of company", "and place of efficient management of company", but not "the place of establishment".

The weakness of the provision under discussion lies in its temporariness. According to the Note 60 of the Budget Law, the regulations provided by the Notes are executable in the budget year only. Thus the change of competence of tax authorities will take effect for a short period of time. This may cause troubles and disturbances as far as the day-by-day performance of the tax organizations duties is concerned.

2. The second provision provided by the Note 45 relates to a new sales tax to be collected during the budget year. The goods covered by the tax are steel, copper products and mobile telephones. The tax is collectible at the stage of selling by the producing companies.


Note 58


Paragraph B of the Note 58 reads as follows:

"The turnover (declared profit) of the National Iranian Steel Company and its affiliates (companies, more than %50 of the capital shares of which belongs to the NISCO) as well as that the National Iranian Company of Copper Industries for the year 1377 [1998-99] shall be subject to the provisions of the Article 138 of the Direct Taxes Act of 1987 as amended".

The phrase "turnover (declared: profit" of the year 1377 is vague. If it means the declared profit arising from the turnover of the year 1377, then operation of the rule will extend to the year 1378, since the profit of a year is commonly determined in the following year. This result is in contradiction with the Note 60, which confines the operation of the law within the boundaries 8 the year 1377.

If else, we take it as meaning the profit declare in the year 1377, then the profit should be ascribed to the turnover of the previous year, namely the year 1376, and not to the year 1377 as mentioned by the law.

Article 138 of the Direct Taxes Act, as it was mentioned earlier, grants tax exemption to companies with regard to profits derived from industrial or mining activities and allocated to a special reserve for development of existing or new similar plants. Therefore, the rule of the Note 58 should be constructed as being addressed to both the tax authorities and the taxpayers (namely The Steel Company and the Copper Company). The taxpayers are logically obliged to allocate all their profits to the special reserve described under the law. They should refrain from distributing or consuming it in any other way. Then, the tax authorities should mutually consider the profit so allocated exempted from taxation.

The full text of the tax provisions of the Budget Law are provided at the end of the Persian section of the journal.







Maintaining the integrity of terminology is a rule that must be observed in drafting any regulations including tax law. This subject is dealt with in the editorial, both in English and Persian sections of the journal.


Tax Regulations to the Budget Law

The State Budget of the Iranian year 1377 (March 21, 1998 to March 20, 1999) comprises two parts: budget figures and budget regulations or "Notes". The "Notes" introduce different regulations, including those of taxation. The author examines the latter notes, comments on them and compares them with similar regulations of the previous years. A summary of the article is reflected in the English section under the heading "Tax News".


Experiences of Three Countries in the Field of Tax Simplification

This is a Persian summary of a similar article published in the Bulletin for International Fiscal Documentation. The simplification work in Australia, New Zealand and the United Kingdom is examined. The firs part of the article is provided in this issue, leaving the second (and lost) part to the next issue of the journal.


Dormant Claim and Avoiding Futileness

An interesting circular of the tax administration is examined in this Article. The circular relates to a situation where the extent of the taxpayer's annual loss is disputed. To engage in resolving such a dispute is of no avail for the time being, although the potentiality of the issue can not be overlooked. This subject and reasonable solution provided under the circular are reflected on in the article. An English translation of the same is presented in the English section under a similar heading.


Respect for Law, a Comment on the Verdict of the Supreme Council of Taxation

The Law on National Cooperation Tax was passed few years ago by the parliament. The law, as amended, was adopted for a fixed duration of 5 years, and the tax imposed by it was a tax on certain categories of property, which had to be collected once only. The 5 year span of the law's lifetime is over, but the taxes assessed and demanded but not collected, are yet collectible.

Ambiguities arose in this respect and several questions raised by tax officials, mostly for cases of tax evasion. These issues and the answers of the Plenary Board of the Supreme Council of Taxation are examined in the article. The author reflects especially on the emphasis of the Board on the requirement of abiding byte law, in spite of other probable considerations.


A Comment on the Article 132, DTA

The Article 132 of the Direct Taxes Act provides tax holidays with regard to the industrial and mining entities that obtained exploitation permits from certain authorities. The wording of the article is not quite clear and definite in some respects. This led to misinterpretations, against which some complaints were filed with the court of Administrative Justice. The author examines these developments and comments on the implications of the Article 132 and the Notes appended thereto


The End