Are Iran's Tax Revenues Really 'Non-Oil'?

According to the Ministry of Economic Affairs and Finance, Ali Tayebnia stated during a speech to the staff of the Financial Supervision and Treasury Department at the end of his visit to the activities of this department that this year ended with the ability to identify the main weakness of the economy and the budgeting system of the country, which is oil, and to plan in such a way that tax revenues exceed revenues from oil sales. Furthermore, the Minister of Economic Affairs and Finance says: 'By March 17, we had about 218 trillion tomans in cash revenue, of which more than 100 trillion tomans came from tax revenues... If we compare this figure with the amount of oil revenues in the country this year, which is about 70 trillion tomans, the ratio of tax revenues to oil revenues in the budget reaches 142 percent, which is unprecedented in contemporary history.' While the reduction of oil revenue share, albeit slight, should be viewed positively, there are serious doubts regarding the Minister's statements about the reduction of oil's share in the budget and the rapid replacement of revenues instead of oil revenues, which are sudden and short-term. It must be emphasized that replacing taxes for oil revenues requires the fulfillment of several conditions. Among these conditions is the endogenous and exogenous development of the Iranian economy. Only by making non-oil sectors productive and export-oriented and collecting taxes from these sectors can taxes be replaced in reality rather than on paper. Another condition for increasing the share of tax revenues in the government budget is accountability and economic transparency of institutions such as the Revolutionary Guards, while simultaneously reducing the activities of opaque and non-economic sectors such as credit funds and informal financial institutions. Therefore, the increase in the share of tax revenues in the budget and on paper is only convincing when it is the product of transformation in the real economic structures. Oil revenues have always been a cornerstone of non-oil revenues. The share of oil revenues in the Iranian government budget has always been extensive, estimated at between 25 to 35 percent based on official statistics in recent years. The high share of oil revenues has been institutionalized in the government budget and Iranian economy for the past 70 years, such that even many seemingly non-oil tax revenues in the government budget are indirectly dependent on oil revenues. If the increase in the share of tax revenues in the budget results from increased taxes on quasi-governmental, military, and security institutions and opaque economic sectors that have substantial rent incomes and evade taxes, this is appropriate. However, if it puts pressure on independent enterprises outside the government and quasi-governmental sectors, they will not be able to create profit accumulation and capital and thus participate in economic growth. For example, taxes collected from the Ministry of Oil and its affiliated companies are oil-based. Or taxes on imports of goods and services financed by oil money have some degree of oil origin. Or, for instance, taxes on the profits of automobile companies, which are one of Iran's major industries and are active in assembling machinery and benefit from cheap oil dollars, fall into this category. Even the government's income from selling currency is somewhat dependent on oil revenues. What the Minister of Economic Affairs and Finance discusses is the direct and explicit share of oil revenues in the budget on paper and does not include the total share of oil revenues, including direct and indirect oil revenues. Therefore, a significant portion of tax revenues, which are apparently non-oil, are actually dependent on oil revenues and would practically cease with the halt of crude oil exports and some of its products. Although increasing the share of tax revenues in the budget is a desirable long-term policy, in a recession, increasing taxes can delay recovery from the recession. Based on the current year's budget, tax revenues are expected to increase as in the previous year. In this context, saving costs in rent-seeking institutions that do not create added value is also an effective tool for budget balance. The fundamental basis of tax policies should be to prevent the activities of rent-seeking and parasitic institutions and to encourage transparent, accountable, and productive activities. However, in the current conditions of Iran, taxes are a source of funding for political and religious institutions such as the Misbah Yazdi Institute, Mohammad and Hadi Khamenei, Qaraati, the Saadi Foundation managed by Haddad Adel, the Islamic Propaganda Organization, or the activities of mourners. The claim of increasing the share of tax revenues in the budget and its exceeding the share of taxes is acceptable only based on real transformations in the economic structure of Iran and its endogenous and exogenous development. There is no sign of such structural transformation. In contrast, one of the signs of the oil-rent economy remaining in Iran and consequently in the government budget is the economic growth statistics from the past year. According to the government's own report, the majority of Iran's economic growth last year was related to the oil sector, and other economic sectors played a minor role in economic growth. Therefore, the oil sector is still the main basis for economic growth and value creation in the Iranian economy, and other sectors create added value and pay taxes with the help of this sector. This is why even some other revenues, such as tax revenues from imports or revenues on profits of enterprises whose activities depend on the oil sector, are more or less dependent on the influx of oil dollars into the Iranian economy.