Iran Economy News A Look at Iran’s 2020-2021 Budget

A Look at Iran’s 2020-2021 Budget

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A Look at Iran’s 2020-2021 Budget

By Pooya Stone

The Iranian parliament is expected to decide on next year’s budget. However, after the gas price hikes, it became clear that neither the branches’ heads of the regime nor the regime’s supreme leader cared about the parliament in crucial political-economic decision-making.

The budget bill, which has not yet been submitted to parliament, has triggered infighting among various ruling factions of Iran.

The key point in the budget bill, which the head of the Planning and Budget Organization Mohammad Bagher Nobakht heavily promotes, is to approach the share of oil sales in Iran’s 2020-2021 budget to zero. However, this claim is a mere lie, given how Iranian President Hassan Rouhani emphasized the need for oil revenues in his speech.

“Today, when the country deals with the obstacles to oil sale, how the country should be run? The annual budget of the country is around 450 trillion tomans [$40 billion]… The question is raised that how should this 450 trillion tomans be achieved? … We envisage that the top tax we can ultimately receive is 150 trillion tomans. Therefore, a question is raised that the government how should obtain the remained 300 trillion tomans needed? While our customs’ income is finally 20 trillion tomans and we have several sundry incomes. However, the main revenue that runs the country is the money of oil sale,” state-run Mashreq quoted Iran’s President Hassan Rouhani’s speech on November 22.

The Mirage of Tax Revenues to Compensate for Iran’s Budget Bill Deficit

Evidence clarifies that the next year’s budget bill has been drafted on tax-based revenues. In the next year’s budget, the amount of tax revenue estimated at best is between 160-175 trillion tomans. In the current year’s budget, tax revenue was estimated at 142 trillion tomans, which shows next year’s budget will have a 23-percent increase in taxes. However, the government’s ultimate revenue from taxes was merely 78 trillion tomans. Therefore, compared to last year, the government should receive two times more taxes from the people, companies, institutions, and all entities dealing with money and property in accordance with a ballpark figure. However, this wouldn’t be easy for the government due to several reasons.

“At present, tax revenue consists of about 30 percent of the total government budget. This figure is very low, and the tax collected is relatively unjust due to many high-income people not paying taxes. Currently, about half of the country’s added value is exempted from paying Value Added Taxes (VAT). The tax evasion is estimated at 75 trillion tomans and there are other tax exemptions estimated at more than 50 trillion tomans,” Donya-e Eqtesad, a newspaper that covers Iran’s economy, wrote in December 7.

Astan-e Quds Razavi, the special fund of Iran's supreme leader for supporting extremist entities in the Middle East.
Astan-e Quds Razavi, the special fund of Iran’s supreme leader for supporting extremist entities in the Middle East.

Those Who Don’t Pay Taxes

In Iran, there are many institutes and economic foundations like the Mostazafan Foundation of Islamic Revolution, Astan Quds Razavi, and military institutions such as Khatam‑al Anbiya Construction Headquarters, tied to the Revolutionary Guards (IRGC), etc. are exempted from paying taxes to the government based on Ali Khamenei’s decree. The reality is the mind-blowing incomes of these institutes and foundations, each of which run several economic holdings, are overseen by Khamenei and their figures are classified. However, these days the amount and the destination of these huge incomes are exposed and of course, this is not a challenge that Rouhani or another person in the government possess the ability or dare to enter.

Another part of the money should come from different segments of society with higher incomes than the middle and lower classes. However, in these circumstances, many of the wealthy and market officials, celebrities and state brokers are exempt from taxes using the corrupt relationships and nepotism in the ruling system.

On December 1, the head of the State Tax Administration Omid Ali Parsa pointed out to the billion-toman incomes of 300,000 people who do not pay taxes. “These billionaires are under the tax rule but more than 50 percent of them don’t pay tax; in fact, these people have no file in the State Tax Organization,” Tabnak website published on the same date.

Another state-run media also underlined this truth, writing, “The recent six-year experience has shown that the government seems to not pursue to receive taxes from rich people and high-income guilds. The state wouldn’t like to arrange new tax regulations for the non-production and non-manufacturing sectors. If this theory is true, the broker boom will replace with production boom,” Vatan-e Emrouz published on December 2.

In this regard, nearly all officials underscore that the ordinary people and poor segments of the society are merely suffering from high prices. Instead, the government-linked minority and affluent progeny of authorities do not bear any economic pressure. Many officials inevitably stress that it is the majority of society who must tolerate the consequences of gas price hikes which effectively resulted in raising the price of other basic needs.

“Each one of the affluent segments of society enjoys several high-consumption cars. They have enough money [to full their cars’ tank] if the fuel price raises many times more and it has no impact on their luxury lives,” Jomhuri Eslami newspaper addressed the high officials in the Rouhani administration on December 7.

“With your decision [about gas price hikes] only poor segments of the society will be crushed… [About affluent minority], there was no reduction in the number of their foreign travels nor their domestic revelries; their luxury parties didn’t end; neither were their extravagances restricted, and the tanks of their high-chassis and expensive cars didn’t empty. Instead, poor people’s tablecloth only became smaller.”

“Why do officials’ economic decisions end at the expense of the poor every time?” Jomhuri Eslami newspaper asked the official of the Rouhani Administration.

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Weak Oil Revenue Disrupts Iran’s Budget

Despite the recommendations of supreme leader Ali Khamenei and vast propaganda by the Rouhani administration regarding the “resistance economy,”  which experts describe as austerity measures mainly aimed at ordinary Iranians, and investing in non-petrol revenue, the fact is that the government has no other source of income except oil sales. Furthermore, during recent months, Tehran faced a reduction in export of other productions such as heavy metals, carpet, and pistachio.

“If we were in an ordinary situation, we would sell $60 billion crude oil every year and with exchanging it to rial we easily obtained around 600 trillion tomans which means two times more than what we needed,” Mashreq quoted Rouhani as saying on November 22.

The next year’s budget bill says the government can sell up to 500,000 oil barrels per day at the value of $52 per barrel. Thus, the daily revenue of oil sales estimated $26 million, annually reaching about $9.5 billion or 60 trillion tomans. However, in these circumstances, these figures are too optimistic. According to the latest details, Iran’s oil sales in November this year were below 230,000 BPD, and it is unlikely this amount increased due to the continuation of the U.S. sanctions.

“According to unofficial sources, the government has accounted for $18-19 billion in oil revenues for next year’s budget. Therefore, the government should sell around a million barrels per day to obtain this revenue. This is taking place when in the last year the high official of administration and the planning and budget organization time and again underlined the impressive reduction of oil revenue. In addition to the amount of oil sales estimates between 300,000 to 500,000 BPD,” Donya-e Eqtesad published on December 7.

Significant Drop in Custom Revenues

The decline in imports and exports has led the country to an impressive decrease in customs revenues which forced the government to reduce its dependence on 33.5 trillion tomans in the current year to only 20 trillion tomans in the coming year.

Interestingly, the country lost 40 percent of its customs revenues during a year alone. However, based on the government’s customs revenue in the current year, which was nearly 8 trillion tomans, we will discover that this part of the budget bill estimate is very far from the reality—around two times more.

Other Resources to Compensate Iran’s Budget Deficit

The head of planning and budget organization vehemently insists on “other resources” in the budget bill, but provided these other resources have any monetary value. However, the other resources merely mean the sale of securities and assignment of the capital properties [in the oil sector] and financial properties [financial papers] or use of the Development Fund.

“The government considers sources beyond the scope of treasury bills and treasury documents to cover unreasonable costs and to align the budget bill. This issue endangers the balance of the government’s financial position in the coming years,” Vatan-e Emrouz quoted the head of the Chamber of Commerce Gholamreza Shafeei as saying on December 2.

Hollow Promises for Iran’s Development Budget

Factually, the Iranian government possesses no reliable sources nor significant revenue to supply the country’s development budget. However, Nobakht spoke out about several resources that he well knows Iran’s budget deficit won’t benefit from them.

“Coincident with the removal of the oil resources from the current budget of the country, our oil revenues in the future year will be assigned to development plans,” Tasnim News Agency quoted Nobakht’s speech during the introduction of next year’s budget bill to Majlis [parliament] on October 21.

Nobakht promised that the 60-trillion-toman oil revenue will be spent on development projects and estimated it will increase two times more compared to last year, but this is nothing except a play on words. Nobakht’s promises are merely dependent on the number of selling crude oil barrels that aren’t specified how much will be?

It is worth reminding that the optimistic estimation of Iran’s oil sales is 500,000 barrels per day however the real figure is much lesser—around 230,000 BPD alone. Therefore, the real oil revenue decreases to half of the legendary $9.5-billion oil revenue per year. Notably, when a country deals with development budget deficit, the chain of production will stop as the Gross Domestic Product (GDP) will similarly decline.

Iranian Officials’ Illusion to Compensate the 220-Trillion-Toman Budget Deficit

The sum of the next year’s budget is 480 trillion tomans, which display a 24-percent increase. Given ordinary incomes through taxes, customs, tolls, infractions, etc. the government can provide 200 trillion tomans. However, there is no resource for the remaining 280 trillion tomans except for several baseless calculations and figures.

The government budget deficit is taking place when the head of Central Bank of Iran (CBI) Abdolnasser Hemmati previously admitted that the government annually needs more than $10 billion for the preparation of basic goods. This cost should be obtained from oil and oil product sales which in the best estimation will $9.5 billion alone. On the other hand, the government is unable to compensate its budget deficit by receiving the money from the governmental firms or companies that are wrestling with the recession and in this case, it will shut down the factories. The government is also crippled to employ the people’s properties which will lead the country to another social crisis.

In conclusion, these days, obstacles that the Iranian government has to deal with them in the case of the budget bill are much further than figures and claims. Several ambiguities in the Rouhani administration’s budget bill have paralyzed rulers to offer a reasonable and strong budget bill to the Majlis. Therefore, Rouhani and his head of planning and budget organization are forced to deploy a fluid budget plan and reference the bill to Majlis is only a publicity stunt. Due to the recent incidents have well proven that neither parliamentarians nor even the president and his administration don’t say the last word and the decision-maker in Iran is the supreme leader Ali Khamenei alone.

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