Saturday , 19 June 2021

Who are the Economic Freeloaders Hemmati Complains About?

Iranwire – “Half of Iran’s economy does not pay taxes.”

So says Abdolnasser Hemmati, the main quasi-reformist candidate in Iran’s 2021 presidential election. In his campaign speeches, the former governor of Iran’s Central Bank has constantly raised the spectre of “stakeholders” and “those people” who have turned their backs on Iran’s economy. In one such tirade, as if in conversation with himself, he asked: “Who are these?”

This question was posed by a candidate almost uniquely-qualified to know the answer, who has held major roles within the Iranian parliament for the past four decades. In addition, before his tenure at the bank, Hemmati served as the political deputy of the IRIB, sat on the Supreme National Security Council’s economic committee, and chairman, for several terms, of the nationwide regulator Central Insurance of Iran.

Despite this, it remains unclear whether the question was rhetorical or not. Hemmati either knows perfectly well who “they” are and fears the personal cost of exposing “them” will be too high, or possibly still doesn’t know – which would reveal the extent to which even officials of his distinguished standing, as non-regime insiders, are kept in the dark in the course of their work.

Autonomy in the Economy

Hemmati expounded on the issue of Iran’s non-tax-paying “majority” in a recent TV news interview. “Rent-seekers, brokers, smugglers and businessmen,” he said, “are the interested parties that encroach on the country’s economy and do not allow productivity to emerge. ‘Sanctions traders’ do not permit the sanctions to be lifted.”

The ex-banker added that he believed some 50 to 60 percent of the Iranian economy was going unregulated. If this is the case, though, the proportion of individuals and firms not paying tax and bypassing licenses and permits has also not changed in the last half-decade.

Back in 2014, Ali Askari, then-head of the National Tax Administration, said the same in an interview with the weekly business journal Tejarat-e Farda: “Sixty percent of Iran’s economy does not pay taxes.” He added that a total of 40 percent of potential wealth creators were tax-exempt and the informal economy accounted for another 20 percent.

Mohsen Jalalpour, the former head of Iran’s Chamber of Commerce, also stated in an article in 2018: “More than 60 percent of Iran’s economy avoids tax. In this vicious cycle, only salaried employees and entrepreneurs who operate transparently and legally are compelled to pay.”

Exemptions and Fugitives

Part of the reason that alleged 50 to 60 percent of Iran’s economy is not paying tax will be the welter of tax exemptions available to them under Iranian law. The scope of these loopholes is wide: shrines, charitable foundations, religious institutions and most of the military and security apparatus do not pay tax and in Iran, these account for a vast proportion of the economy.

Meanwhile, informal economic activity and the black market continue to thrive, out of sight and out of mind. How close this “gray zone” is to Iranian officials and those in power is anyone’s guess, but the relationship has occasionally been evoked in sardonic comments by seasoned politicians. Mahmoud Ahmadinejad, for instance, infamously drew attention to “our smuggler brothers” while Hassan Rouhani referenced a “government with a gun“.

Long before them, Mehdi Karroubi, speaker of the sixth parliament, had warned of the Iranian economy’s “invisible docks”: entry-points without customs or other supervision, through which goods could be smuggled with ease. In a pointed reference to the IRGC during a post-election period, Karroubi said: “We did not have money from invisible docks; we did not have money from smuggling; we were not involved in the sugar business; but my supporters sacrificed their lives. We suffered and fought on two or three fronts to have an honorable election.”

Counting the Cost

Alireza Zakani, a conservative MP and also a candidate in this year’s presidential election, was formerly head of the Parliamentary Research Center. As part of this, last January he presented a set of figures to parliament about tax evasion, which according to the Center’s estimates was causing losses of 200 trillion tomans ($8.3bn) a year to public coffers.

This was the highest-ever official estimate to have been declared in public. In general, the amount of money lost to tax evasion annually in Iran has been put at 35 to 75 trillion tomans.  

The cost to Iran from wide-ranging legal tax exemptions is similarly hazy. In an interview with IRNA News Agency in December 2020, Mehdi Toghyani, spokesman for the Parliamentary Economic Committee, put this figure at somewhere between seven and 400 trillion tomans.

“Since the revenue system is not clear,” he said bluntly, “we do not know the total value of tax exemptions, and these estimates are not accurate.”

Omid Ali Parsa, the current head of Iran’s National Tax Administration, has meanwhile said that 35 percent of the economy, “such as agriculture, culture, exports, free and special zones, and so on, are exempt from taxes.” But he also added: “These are general terms and is not clear how it is applied.”

In essence, even to the experts the losses to Iran’s economy from tax avoidance and tax evasion remain unquantifiable. This makes it harder in turn for the government to try to recoup these lost revenues on behalf of the people. Across the board, though, the agreement appears to be that these activities constitute a huge wedge of Iran’s economy, and the concurrent losses run to tens of trillions of tomans.

A Big Slice of the Pie for Crumbs in Tax Parments

The various foundations, shrines, institutions and economic conglomerates under the auspices of the Office for the Supreme Leader are among the least accountable in Iran.

Integrated through the Executive Headquarters of Imam’s Directive, otherwise known as Setad, these parastatal entities control an enormous amount of Iran’s wealth but reports on their tax status are ambiguous and contradictory. Some subsidiaries are more transparent than others due to having a presence on the stock exchange, but their overall documented activity is still sparse and obfuscating.

Since 1993 the Executive Headquarters of Imam’s Directive has also had its own in-house auditing firm, Mofid Rahbar. The bean-counters of Mofid Rahbar now have a monopoly on checking the accounts of Setad’s countless legal entities, rendering any external, independent verification of the books practically impossible.

A study by the Ministry of Economy in 2020-2021 found that the huge Mashhad-based bonyad Astan-e Ghods, Setad, and Iran’s other “revolutionary” foundations and institutions together control about 10 percent of Iran’s economy. But according to the Ministry’s report, which was disseminated by the official news agency IRNA, they pay just 0.008 percent of the total tax collected in Iran each year.

These economic giants have also severely narrowed the arena of competition in the Iranian economy. The problem of non-transparency has been compounded in recent years by the emergence of hybrid “public-private” firms, which came about as part of Iran’s government-sponsored privatization program. These companies have neither the efficiency and agility of private firms, nor the level of oversight afforded to state-owned ones.

For the past four decades, save for just a few years, Abdolnasser Hemmati has arguably been Iran’s number one economic manager. But even he has yet to provide the names of “those” he claims are riding roughshod over their tax obligations.

“If we cannot open the fist of these stakeholders and rent-seekers,” he thundered, “and solve the corruption they created, we will not be able to resolve the problems of society. They have extensive connections in exports and imports, links with businessmen and sanctions traders, links to smuggling and money laundering. They dominate the country’s economy.”

While welcome, these remarks do not give rise to any fresh hope by themselves. If Hemmati is serious about safeguarding the Iranian economy and individual livelihoods, he could start by putting his money where his mouth is and publicly stating who “they” are.