Iran earns more from tax than oil for first time in almost 50 years
The Iranian government is earning more from tax than oil for the first time in almost half a century as the country shifts its traditional reliance on crude to taxation revenues in the face of plummeting oil prices.
President Hassan Rouhani’s economic strategy is to significantly reduce the government’s dependency on oil and instead collect tax more systematically, according to Ali Kardor, the deputy managing director of the national Iranian oil company (NIOC).
“For the first time in 50 years, the government’s share of the oil revenue is less than what it is earning from tax, including VAT,” he told the Guardian on the sidelines of the second Europe-Iran forum in Geneva. “Only around 10% of Iran’s GDP is currently dependent on oil.” Almost 20% of oil income goes into a sovereign wealth fund, which is reserved for development purposes.
Iran’s oil revenue took a heavy toll in recent years from the oil embargo imposed on Tehran by the EU and US over its nuclear programme and latterly because of falling global crude prices. Sanctions are expected to be lifted when the UN nuclear watchdog verifies Tehran has taken the necessary measures to roll back its nuclear activities as outlined under the landmark nuclear agreement struck in July. Rouhani said last week that could be as early as January.
Kardor said NIOC would offer a set of new lucrative contracts to foreign investors, worth more than $100bn (£66bn), for about 45 potential onshore and offshore fields by November. “We currently produce 3m barrels of oil a day, of which 1.3m are exported but we expect that to increase to 2.3m in May or June next year,” he said.
Hossein Rasam, the director of Rastah Idealogistics and former Iran adviser to FCO, said Tehran had taken important steps in recent years to rectify loopholes and move toward tax revenues rather than rely on oil wealth. It was not clear, he said, if Iran could maintain the equation should its crude sales increase or oil prices go up in the future.
“Under advice from the IMF, Iran began to redefine taxation in the early 1990s, but genuine efforts only started under the reformist president Mohammad Khatami and continued under Mahmoud Ahmadinejad, when VAT was first introduced.” he said. “Bearing fruit just now, Iran is pursuing tax collection more seriously and putting itself in order to rely more on taxation.”
Years of financial stringency under international sanctions have contributed in forcing Iran to find a way to reduce its reliance on crude, he said. “This is a positive development for Iran, for the more tax people pay, the more accountability and responsibility they will demand from the government.”
Under Reza Shah Pahlavi, who abdicated after the Anglo-Soviet invasion in 1941, Iran constructed a nationwide railway only thanks to a version of VAT on sugar and tea, two staple foods.
Amir Ali Handjani, an Iranian-American energy executive, said Iran was incentivised to implement the nuclear deal much faster to prove to the world that it is prepared for doing business.
“We are in an unstable period,” he said. “There are lots of hope and expectations but that needs to be met with results. The question is whether the government in Iran can manage expectation as some sanctions will remain in place, mainly US sanctions.
European firms will have to be sensitive in pursuing business in Iran with great caution. Europeans will be the biggest benefactor, let’s not forget EU was Iran’s largest trading partner a decade ago and there is no reason why they can’t do the same now.”
The chancellor, George Osborne, told the Financial Times last week that he intended to take potentially the biggest delegation of UK businesses and investors to Iran next year.
The Europe-Iran Forum paid for the Guardian’s travel and accommodation.