Make your own free website on

Maliyat Journal (Iranian Tax Review)

No. 32, Summer 2001

English Section






The tax administration of today's world has to deal with issues much different from these of the past. The origin of this difference and alternation is to be found in rapid changes scale. New branches of business are evolving, the scope of trade is broadening and a range of unheard-of sources of income and wealth are coming into being. Side by side these developments, the tax system should improve its capabilities and become ready to cope with exigencies of new circumstances.

An eminent feature of the above developments having substantial bearing on taxation issue is the proliferation of commercial, industrial and technical relationship between various societies of the world. A country with no virtual interest in such type of trade and economic links scarcely can be found in our time:

In this state of affairs, the tax system should play its appropriate rule and its rules and criteria must be clear and unambiguous. The fact that tax treaties are becoming an inevitable element of tax legislation manifests the significance of the said relationship in the economic life of the present-day societies.

An ever-increasing number of tax treaties are included during last decade. The scope of treaties has also been broadened. In the past, they used to cover arrangements for preventing the occurrence of double tax solely. Even now, the laymen associate it with the same restricted sphere.

At the present, however, the tax treaties not only contain provisions for handling the problem of double taxation, but they also provide for cooperation between contracting states for prevention of tax evasion. Even the idea of co-assistance for collection of taxes gradually finds its way into tax treaties.

As regards the type of taxes, the treaties have taking place in social and economic life of the contemporary world, a continuous process, which no end to it is conceivable. Growth of population and diversification of human needs have causes the expansion of commercial and economic activities in an unprecedented extended to heritage and gift taxes as well. These now tax treaties have the same scope and provide for the same provisions (as stated above) with regard to the latter type of taxes.

We are also witnessing emergence of similar treaties in relation to social security contributions. These treaties envisage provisions for preventing double payment, and also evasion and avoidance of payment, of such contributions.

All types of tax treaties are constituents of the internal law of contraction states and are to be observed by respective authorities.

They are commonly ratified by the legislature, and thus have the power and effect of law, beside the fact that abidance by agreement is a recognized principle of international law.

The tax administration should take into account all above considerations and prepares itself for responding to demands and requirements thereof. A remarkable manifestation of that can be noticed in cases where some aspects of international trade and economic relations are to be dealt with. If a tax question is put forward in connection with such issues, the regulations of domestic international tax law, in addition to provisions of respective tax treaties should certainly be considered and observed. A considerable part of international tax law is usually included in domestic law of each country. Alongside that, the provisions of tax treaties must also be fulfilled.

The authorities in charge of deciding upon international tax matters, including tax assessment officials, Boards for Settlement of Tax Disputes and the Supreme. Tax Council; have to take the above observations into account. The ordinary tax laws and regulations would not suffice, and we have to enhance our knowledge by careful study of international tax treaties and the literature connected therewith. This is a new and serious challenge, to which all of us have to confront and respond in an appropriate manner. The scope of the work is extensive and calls for endeavor and strive. This is an unavoidable fact, since even the traditional legal duties oblige us to observe it. How we can ignore a tax treaty, while it is a constituent of our domestic law? Should we do so, we should certainly breach our own domestic law.

Beside that, by disregarding the task of overall study of international tax law, one would deprive him from the comprehension of the real substance of the issues and relationships regulated by tax agreements.

Such a person would not be able to render a correct decision upon the respective tax questions.


Dr. Aliakbar Arabmazar



Tax Provisions of the Budget Law

By:  Dr. Mohammad Tavakkol


The Iranian annual budgets usually contain not only the figures, but also a number of different provisions on revenues and expenditures, which are termed as “Notes” (Tabsareh). There are 50 Notes appended to the budget of the Iranian current year  of 1380 (March 21, 2001 to March 20, 2002). Some of these “notes” provide for tax regulations. These latter provisions can be divided into the following categories:

- Notes envisaging tax exemptions,

- Notes on expensing of certain items in computation of some entities’ tax liability,

- One case of relief in connection with tax coefficients,

- Notes re-imposing certain indirect taxes, and

- Provisions for assuring the collection of income tax from public entities (one Note).


A. Exemptions

1. Section “O” of the Note 2 of the Budget Law allows for refunding of a tax collectible from a state-owned bank called “Bank-e San,at va Ma,dan (Industry and Mine Bank). The tax is to be collected from the sale of the shares of some companies affiliated with the Bank.  All the tax will be paid to the treasury first, and then will be added to the Bank’s capital (as an addition to the capital share of the government).

Though the term tax exemption is not directly used in the above “Note”, but the result will exactly be equal to granting of tax exemption in respect of the transaction described above.

2. Section “I” of the Note 10 of the Budget law authorizes the Social Security Organization to lend (in the course of the budget year) an amount of IRR 50 billions, from its income and reserves, to qualified persons for specific needs (housing, marriage, etc.). The money will be administered through the Bank-e Refah-e Kargaran (Bank for Welfare of Workers). The principal amount of the Loans, together with interest accrued thereto, will be returned to the Social Security Organization, and no taxes will apply either to the principal or to the interest.

3. According to the section “O” of the Note 10, the medicine and medical appliances imported for the benefit of invalids (because of war or otherwise) shall be exempt from all kinds of taxes and custom duties.

4. Section “B” of the Note 14 provides for refunding of the consumption tax on the goods bought and carried abroad by foreign passengers. The refund to the passenger will take place at the exit terminal (airport or other departure points). This rule, which is enacted to encourage tourism and exportation, would cover items such as music and video tapes, cigarettes, etc.

5. Section “A” of the Note 35 rules that the turnover of the National Iranian Steel Company and its affiliates, as well as that of the Iranian Copper Industries Company, and the Iranian Petrochemical Industries Company, and its affiliates, shall be subject to the provisions of the Article 138 of the Direct Taxes Act (DTA) as amended.

Article 138, DTA, provides that any part of the declared profits of the companies derived from industrial or mining operations, which the companies reserve for the purpose of reconstruction, development or completion of their existing industrial and mining plants, or for setting up new ones, shall be exempt from taxation. The same exemption shall also be granted if the profits of such companies are allocated to a reserve for construction of houses for their employees.

Now, the last paragraph of the section A of the Note 35 of the Budget Law grants the same exemption to the afore-mentioned three companies and their subordinate entities. This implies not only tax exemption for the above corporations, but it also requires them to invest all their profits for purposes referred to under the Article 138, DTA.

6. The Note 40 allows certain government organizations and enterprises to sell considerable volume of a special kind of securities called “participation bonds”. The government is obligated to allocate each year necessary amounts for repayment of the principal and interest of the bonds, the maturity date of which has befallen. The banking system is also required to guarantee such repayment. The tax aspect of the issue is that all such bonds and the interest accrued to them have been exempted from taxation (section “E” of the Note 10).


B. Expensing of Certain Expenditures

The Budget Law has also envisaged cases of acceptance of certain expenditures as deductible items for computation of tax liability. These cases are as follows:

1. According to the section “N” of the Note 10, all manufacturers, either private or public, may set up sanitary and therapeutic services under the supervision of the Health Ministry, and spend for this purpose not less than half percent of the profit of their entity for the preceding year. In this case, any amount expensed by them to that end shall be deductible from their taxable income for tax purposes.

2. Note 24 of the Budget Law allows the average price of oil and natural gas products, as well as the price of electricity to be increased up to 10% in the budget year. (The government controls the production and pricing of these items). The revenue generated from this price increase will be remitted to certain accounts, and then will be invested in projects such as optimization of energy consumption, electrification of agricultural water wells of provinces and also for employment schemes.

These projects are to be implemented by the same public corporations that are responsible for production and distribution of the above-mentioned products (such as the National Iranian Oil Company).

Section “E” of the Note 27 provides that by allocation of the above revenue to the relevant companies, the investments made by them from their total profits shall be accepted as deductible expenditures for tax purposes. As figures of the budget show, all resources of these companies, including their net income, are allocated to investment and repayment of debts. Thus, no income tax and no dividends are forecast in the budget for these important corporations.

3. Budgetary issues of transportation are dealt with under the Note 33. Section “E” of the Note rules that the shipment price of cargo by railway be increased for 5 Rials per kilogram/kilometer. The Railway Organization should add to this amount another 5 Rials per kilogram/kilometer from its own revenue. The total amount (10 Rials per kilogram/kilometer) will be given to an affiliate of the same organization called Raja Company who is responsible for passenger service. Raja Company in its turn shall invest the revenue so allocated, for development and reconstruction of the railway passenger fleet. All the investment made by Raja Company for this purpose, either from the said source or from its other resources, shall be accepted as deductible for tax purposes.


Relief in connection with tax coefficients

Two interrelated terms are used in the Iranian tax law: tax indicia and tax coefficients. Tax indicia are the factors employed (in respect of each business line and with due regard to the conditions of each business) for ex officio assessment of taxable income. Annual purchase, turnover, gross income and production volume are some examples of tax indicia.

Tax coefficients are certain figures that when multiplied by tax indicia, the product will constitute the taxable income of the taxpayers in cases of ex officio assessment (see Articles 152, 153 and 154 of the Direct Taxes Act).

After this brief explanation, let us return to the Budget Law. Encouraging the set up and development of modern and more industrial bakeries is the aim of the section “J” of the Note 5 of the Budget Law. The incentives given for this purpose include a tax relief to the effect that tax coefficients applicable to traditional bakeries shall apply to all bakeries around the country in a uniform and consistent way. This means that the modern bakeries with higher income will be subject to the same tax coefficients as is applicable to old and traditional bakeries.


Indirect Taxes

Note 35 of the Budget Law has re-imposed certain indirect taxes of the preceding year. These taxes are applicable to steel, copper and petrochemical products; cars, mobile telephones and soft drinks. The taxes of each month’s sales are to be remitted not later than 15 days from the end of the relevant month. Any delay in payment will cause imposition of a fine equal to 5% of the deferred tax per each month of delay. No sales tax will apply if the goods subject to taxation are exported. Collection of the tax will be effected in conformity with the procedure stipulated under the Direct Taxes Act.


Safeguarding Tax Revenue

Section “A” of the Note 2 allows the government companies, banks and non-profit public enterprises to amend their annual budget by observing certain procedures and conditions, including the following:

The amendment should not cause the amounts forecast in the budget as the income tax and dividends payable by these entities to the government, to be decreased.


k j h f


An Introduction to the Iranian Tax System



By: M. T. Hamadani


(Part  12)



In last issue, we discussed about the tax on salary income and defined the income subject to taxation, the way it is assessed and also the cases of tax exemption. Now the provisions on threshold of taxable income and other regulations regarding the salary tax will be examined.




Threshold and Rates


The annual income subject to salary tax is exempt from taxation up to a threshold equal to sixty times of the base minimum

salary envisaged in the Article 1 of a law titled the "Law of 1379 (1991-1992) concerning the Coordinated System of Payments to the Civil Servants".

From time to time, the minimum salary is adjusted (usually increased) to ameliorate the effects of inflation on purchasing power of salary receivers. So, the amount of the threshold too changes accordingly. The latest available amount for the threshold is IRR 4800000 per year.

Besides that, and in addition to all other exemptions provided under the Direct Taxes Act (DTA), an amount equal to 25% of the applicable salary tax shall also be spared in each year. The wiling for the amount so spared in 12 times of the maximum salary determined under the law of 1979 on Minimum and Maximum Salary of Employees. This amount is also subject to adjustment to take into account the effects of inflation. The latest available figure is IRR 24000000 per year.

The remaining part of the taxable salary is subject to taxation at the rates stipulated under the Article 31, DTA.

These rates begin from 12% (applying to taxable amounts up to IRR 1,000,000) and end at 54% (which is applicable to the amounts over IRR 300,000,000. The rates between the minimum and maximum are: 18%, 25%, 35, 40%, 45%, 50%, and 52%. In a new amendment of the law submitted for the approval of the parliament, the maximum rate of the article 131 has been decreased to 52% and the income brackets are also adjusted to take into account the effects of the inflationary trends of the recent years (10 brackets beginning from IRR 4,000,000 and ending at IRR 1,000,000,000). 


Method of payment

The salary tax is commonly a withholding tax and except in case of the salary received from the persons residing abroad, the employer has to withhold the tax and remit it to the relevant authorities. No tax return is to be



Corporations and other juridical persons are outside the scope of this chapter and it applies to individuals only. For being subject to this type of tax, the income itself should have earned "in Iran". So, any income derived abread would not be dealt with under this heading.

The Article 93, DTA specifies these two conditions and adds other specifications as well:

"The income derived in Iran by individuals through engagement in businesses or under any other titles not specified in other chapters of the present Act, less the exemptions provided in this Act, shall be subject to tax on business income", (The income specified in other chapters include: real estate income, income from agriculture, salary income and incidental income).

As it can be observed innumerable persons may become subject to this chapter. People engaged in buying and selling goods or services (other than those excluded by the Article 93) are potential subjects of business income tax, whether they are whole sellers or retailer, large a small.

Several businesses subject to this type of tax are listed in the Article 96, DTA, which rules that these categories of taxpayers should keep statutory books of accounts and their income shall be assessed by reference to their books. The list of this article would give us a general idea of the types of taxpayers that are dealt with in this part of the tax law. The list includes:

(a) holders of commercial license and all importers and exporters; 

(b) owners of factories, workshops and producing units, for whom the license of establishment or exploitation has been issued or will be issued from the respective ministry;

(c) owners of construction firms, enterprises of technical and industrial installations, technical and engineering consultant bureaus and drawing, land surveying and supervision institutions;

(d) owners of auditing and consulting firms;

(e) owners of hotels and motels; 

(f) owners of hospitals, maternity hospitals, sanatoriums, the insane asylums and polyclinics;

(g) exploiters of mines;

(h) owners of land, sea or air motorized transportation firms, whether for carriage of passengers or freight;

(i) owners of journals and newspapers, publishers of books and owners of printing firms;

 (j) owners of educational institutions that hold licenses from the either Ministry of Education or Ministry of Culture and Higher Education;

(k) owners of cinemas, theatres and filming and dubbing studios;

(l) physicians, dentists who have clinics, and veterinarians practicing veterinary medicine;

(m) owners of test laboratories, laboratories and similar institutions, whether for medical or non-medical purposes, and the owners of X-ray and physiotherapy clinics and hygiene institutes;

(n) brokers and commission agents, except the agents distributing oil products;

(o) representatives of commercial and industrial enterprises, whether domestic or foreign;

(p) owners of authorized repair shops and service stations;

(q) notaries public and registrars of marriage and divorce; and

(r) attorneys-at-law, official experts and translators of the Justice Administration.

Apart from the above list, many small businesses and provides of services are also subject to tax on business income.

Millions of people around the country can be categorized as having business income subject to the chapter in question.

The provisions of the tax law regarding the statutory books of account, submission of tax return,  assessment of taxable income and other provisions regarding the taxation of business income will be studied in the next issue of the journal.


a d f g


Abstracts of Persian Articles



Overall study of international tax law is an urgent requirement for the modern tax administration of today's world. This subject and the challenge it places before the tax officials dealing with international tax issues, is reflected on in the editorial of Persian and English sections of the journal.


Budget Law of the Year 1380 (2002-2003)

The Iranian annual budget contains not only the figures, but also various provisions on revenue and expenditure. Some of these regulations pertain to tax matters, such as tax exemption, deductibility of certain expenditures, imposition of excise duties, and the like. The author examines and analyzes the tax provisions of the budget law of the Iranian year 1380. (A similar article is presented in the English section of the journal).


Tax Competition and European Internal Market

This is the first part of Persian translation of an article written by Frits Bolkestein, EU Commissioner for tax affairs and internal market (pointed in the journal European Taxation, Official Journal of the Confederation Fiscale Europeenne, vol. 40, No. 9). Second part of the translation will be provided in the following issue of Maliyat journal.


Comment on a Verdict of the Supreme Tax Council

Article 58 of the law on the third development plan had eliminated all types of tax exemptions and abatements with regard to public organizations and entities. In spite of that, some organizations try to maintain their previous exemptions by resorting to legal argument.

A question of this type was raised before the Supreme Tax Council. It was concerning the stamp duty on securities of state-owned companies. The SCT ruled that the abatement, which previously been envisaged in respect of the latter tax, is no more applicable in light of the said Article 58 of the third development plan. The SCT verdict and provisions of the said Article 58 are discussed and reflected on by the author.


Tax Exemption of Non-profit Organizations

A decision of the Oregon tax court on the appeal of a non-profit entity is examined in article. The decision is interesting because of the objective approach taken towards the question and analysis given with regard to the requirements that must be met by a non-profit organization for becoming entitled to tax exemption.


Basic World Tax Code (BWTC)

The International Tax Program at Harvard University Sponsored the 1996 Edition of BWTC, which is written by Ward M. Hussey and Donald C. Lubick (both higher qualified international tax experts). The idea behind BWTC is to provide a legislative framework for the use of developing and transitional countries. A general description of BWTC and principles upon which it rests, are provided by the author in two parts, the second of which will be presented in the next issue.


A Tax Return from the Internet

The tax return of Alexander Ivanovich Lebed (famous Russian general and politician) for the year 1994 is translated and introduced in this issue of the journal. In the previous issue we introduced the tax Return of William J. Clinton, former U.S. president and his wife.


Income Earned "in" or "from" a Country

The Iranian tax law distinguishes between the cases where an income derived "in" or "from" a country (including Iran itself) and provides different provision for these two situations. But it is not always easy to decide whether one or another case has taken place. Interest on a loan sent by an Iranian borrower to a foreign lender is an example of these ambiguous cases, which is examined by the author in this article.


Exception Turned into Rule

Facilities provided by the tax law for certain exceptional case, may occasionally developed into common and permanent rules. For instance, Note 1 of the Article 110, DTA allows the extension of the time limit for submission of tax return up to 6 months. This permission may be given to government agencies and corporations only, and is conditioned on rendering justification acceptable to the Finance Ministry. This exceptional facility has grows into a common practice and most of government agencies take benefit from it. A ruling from the Finance Ministry prohibited this practice and orders the tax authorities to restrict and confine it to cases where real justification does exist for the facility.


The End