The Journey of the E-Tax Project in Iran: Over 20 Years of Progress and Challenges

The implementation of the E-Tax project in Iran has traversed a path of ups and downs over the past 20 years and continues along the same trajectory.

According to IDEA, the fact that the execution of the E-Tax project in Iran has undergone a journey of ups and downs over the past 20 years can be attributed to a multitude of reasons.

One reason is attributed to the statements of Davoud Mansour, the former head of the Tax Affairs Organization. In an interview, he had stated: ‘In the first 11 months of 1401 (solar year), we collected 430 trillion tomans in taxes from the people.’ The budget law for 1401 had predicted that the government could collect 454 trillion tomans in taxes. A comparison of these figures indicates that the government has successfully identified a significant portion of taxable incomes and managed to collect them.

Looking at the budget law for 1402, the total projected tax revenues amount to 838,609 billion tomans. In fact, 72% of the government’s general revenues for the coming year will be derived from taxes, with 296 trillion tomans coming from corporate taxes, 122 trillion tomans from income taxes, 376 trillion tomans from wealth taxes, 129 trillion tomans from import taxes, and 252 trillion tomans from taxes on goods and services.

The 72% share of the government’s 13th administration from tax resources stands as a testament to everything. Even if the implementation of the Point of Sale (POS) and E-Tax projects were to be delayed for a while, the provincial taxes would not be suspended.

Ashkan Herati, the research deputy of the Tax Affairs Organization, had previously stated: ‘In the process of automating the tax system and specifically organizing the bank card reader devices, we have organized around 18.8 million card reader devices in the last year and the current year. 9.3 million bank card reader devices have been linked to tax records. In the same vein, 2.3 million new taxpayers have been identified.’

Herati emphasized that the purpose of implementing the POS law was to uncover tax evasion: ‘More than 300 million electronic invoices have been registered in the Moadian system. There are 9 million tax folders. More than 35,000 taxpayers have joined the Moadian system during the current period.’

Tax Affairs Organization statistics indicate that up to now, 35,000 taxpayers have joined the system. In essence, the POS law has reached its third phase, which involves calling on legal entities to join. This phase will likely have the highest number of electronic invoices and new taxpayers. However, legal entities have now become a new headache for the government, and the Tax Affairs Organization does not have the capability to create the necessary infrastructure, especially electronic signatures. This halt brings to mind the saying, ‘He had no shoulders to break even a hair.’ E-Tax has also reached a critical juncture in President Raisi’s administration.

This is happening while the banking system has thus far had an acceptable performance in registering and identifying card reader devices. Close to 19 million card readers have been identified, and out of that number, nearly 9.5 million have been linked to the Moadian system. The result of this effort has been the identification of nearly 2.5 million new taxpayers for the Tax Affairs Organization.

The POS law was swiftly implemented by the banking system, and today, there are very few card readers that remain unidentified, and most business accounts have been identified. In fact, the country’s banking system has managed to identify the ‘high-risk’ Moadian, which were the target of the POS law. However, now that the Tax Affairs Organization must demonstrate acceptable performance in terms of electronic invoice registration and connection to the Moadian system for legal entities, the parliament has postponed the execution of this phase of the POS law until Mehr (September-October).

From Dream to Reality: Electronic Taxation

The Transition from Traditional to Modern Taxation System: A Goal of the Third Development Plan The shift from traditional taxation to modern taxation was one of the objectives of the Third Development Plan, and this initiative was launched during the administration of President Khatami in the year 2004. In 2005, the Comprehensive Tax Plan Office commenced its operations and was tasked with organizing an international tender. In this tender, Deloitte Canada won the position of international consultant.

In fact, this company was entrusted with the task of designing integrated tax software and evaluating and studying the proposals of aspiring contractors. It laid out a plan in the form of five sets and 32 projects for the comprehensive tax initiative, and the French company BULL was also chosen as the winning contractor for implementing this plan.

However, with changes in the government, this project fell into a time abyss and there was no news of it until the year 2009. In 2010, this project was revived again in collaboration with the company BULL during the administration of President Ahmadinejad. Initially, this project had been entrusted to the Iranian Data Processing Company prior to involving BULL, highlighting domestic capabilities. After two years of fruitless efforts, the Tax Affairs Organization had to hand over the project to the IT Department of Sharif University. However, even after a year or two spent on this project, the Tax Affairs Organization decided to seek the assistance of foreign consultants. Nevertheless, the comprehensive tax initiative couldn’t achieve its goals outlined in the Third Development Plan. By 2018, this initiative was only able to assess 27% of tax files, and the estimated cost for the tax software was 120 billion Tomans.

In September 2011, Ali Asgari, the then Deputy Minister of Economic Affairs and Finance, stated in an interview with Mehr News Agency regarding the implementation of the comprehensive tax plan: the comprehensive tax plan is being implemented in six phases: preparation, functional analysis, operational, and development of technological sections. He also mentioned that the French company BULL is collaborating with the Tax Affairs Organization in the field of software and technology. In 2013, the same deputy minister announced that the comprehensive tax plan would be implemented in three provinces, Tehran, Isfahan, and Kermanshah and that the full implementation of this plan nationwide would be completed by the end of 2015. However, this promise also failed to materialize during President Ahmadinejad’s administration.

Nonetheless, in the eleventh government, Ali Asgari was appointed as the head of the Tax Affairs Organization to push forward the tax project. However, he resigned from this position in 2015, and Seyyed Kamal Taqavinejad took over. In 2017, Taqavinejad announced the completion of the tax information system and the execution of 32 projects under the comprehensive plan. He also announced the finalization and execution of the integrated tax software. He stated that the registration and submission of tax declarations for taxpayers is now 100% electronic, and over 99% of tax declarations are submitted electronically. Furthermore, the capacity to eliminate paper from the administrative system has been achieved.

Contrary to Taqavinejad’s claim, the comprehensive tax plan also failed to achieve its goals during President Rouhani’s administration. Instead, the government proceeded with the implementation of the Terminal Sales Law and the Moadian system following the failure of the comprehensive tax initiative. This law was passed by the parliament in November 2019, and the government was given a 15-month period to implement it. In November 2020, the then Deputy of the Tax Affairs Organization announced that the Terminal Sales Law would become operational by the end of 2020, and the Moadian system would be launched by February 2021. He had stated to the media, ‘If the data exists, according to the legal schedule, we will advance the Terminal Sales Law. Taxpayers are required to register financial events in their portfolios starting from February, and the validation of taxpayers’ documents will be done through this system.’

However, by the end of 2020, the Rouhani government was also unable to enforce this law. In the final months of Rouhani’s term, Reza Baqeri Asl, the then Secretary of the Executive Council of Information Technology, had explained, ‘The comprehensive tax plan has not been satisfactorily and sufficiently implemented in the field of electronic taxation. The Tax Affairs Organization was obligated to launch the ‘Moadian System’ and enable electronic issuance of tax invoices through this system by Azar 1399 [November 2020]. This task has not been accomplished so far, and the cost of this delay has been estimated to exceed 30 trillion Tomans.

Baqeri Asl had mentioned at that time that this task in the Sixth Development Plan had only achieved 27% to 28% progress.

In fact, it was planned that the National Electronic Taxation Gateway would be launched with 12 services for taxpayers by Azar 1399 [November 2020]. However, by the final days of 2020, this gateway only provided two services: querying tax liabilities and indicating a ban on leaving the country due to tax issues.

A Law for Delay

The Iranian Tax Organization has launched its fourth system, the Taxpayer Portal System. This system, based on the Retail Terminal Law and the Taxpayer Portal, has been put into operation since September 2022. So far, large stock market companies have connected to this system, and in December 2022, state-owned companies also joined the Taxpayer Portal System. However, the development process of the Taxpayer Portal System for legal entities has come to a halt, and it is expected that this phase will become operational in Mehr month (September-October) with infrastructure development.

With the postponement of the implementation of the Retail Terminal Law to Mehr month, the fourth stage, which involves eight categories of Value Added Tax (VAT) payers, and the fifth stage, which involves first and second-category business owners, as well as the sixth stage involving other taxpayers, have been delayed. When the Retail Terminal Law was approved by the parliament, it was believed that this program should be implemented all at once. However, with the plan being divided into six stages, the Rouhani administration has postponed the implementation of the Retail Terminal Law to early autumn, while simultaneously focusing on achieving 72% of tax revenue. It remains to be seen whether the Thirteenth Government, in its third year of activity, can turn the dream of electronic taxation into reality through the implementation of the Retail Terminal Law, or if we have to wait for a different government to finally bring this long-standing issue to an end.