CHAPTER SEVEN:

Taxation and Budgeting System

 

ARTICLE 58- All reductions, preferences, tax exemptions and customs duties of all agencies content of Article (11) of this Law- institutions, revolutionary, public and non-governmental entities excluding cultural institutions- and the exemptions granted on the basis of the international commercial conventions, as well as the exemptions granted in connection with import of pulp used in publication of educational text books shall be abandoned from 1379 (21 March, 2000)

Note 1: Enforcement of the provisions of this Article on the institutions that have been granted the permission by the late Imam Khomeini or the Supreme Leader shall require approval of the Supreme Leader.

Note 2:  The main defense items procured from abroad by the Ministry of Defense and Logistics of the Armed Forces and other armed forces are not included in this Article.

ARTICLE 59- In the taxation system:

   A- To enhance efficiency of the taxation system ,  to eliminate the existing organizational barriers, and to consolidate all the activities pertaining to tax collection, government is authorized to set up the “State Organization of Taxation Affairs” as a public agency and under the auspices of the Minister of Economic Affairs and Finance.  Upon the establishment of this organization, all the existing authorities, functions, manpower, equipment and facilities at the disposal of the Ministry of Economic Affairs and Finance that are currently used by the Office of the Vice Minister for Taxation Affairs, and affiliated tax agencies, will be transferred to this organization.

The organizational structure of the said agency and the executive by-law of this Article shall be proposed jointly by the Ministry of Economic Affairs and Finance, and the State Administrative and Employment Affairs Organization and be approved by the Cabinet.

B- Ministry of Economic Affairs and Finance is required to design and operationalize within the first three year of the development Plan, a comprehensive tax information system, through collecting and processing information on economic activities of the tax payers in the nationwide networks, and to develop a procedure of self-declaration practice in taxation.

ARTICLE 60*- To stabilize the foreign exchange earning from export of crude oil during the Third Plan , to convert the proceeds of oil revenue to other forms of financial instruments and assets, and to insure accomplishment of the activities envisaged in the Plan,  government is required to undertake the following actions by opening a “Prudential Exchange Reserve Account”, and a corresponding “Rial Reserve Account”:

A-Effective from the year 1380 (2001/02) the foreign exchange revenue from the crude oil export exceeding the envisaged figures in table (2) of this Law shall be deposited in an account titled as the “Reserve Account for the Crude Oil Income” with the Central Bank of the Islamic Republic of Iran.

B- From the beginning of the third year of the Plan, in case the revenue from the crude oil export falls short of the envisaged figures in table (2) of this Law, government is authorized to withdraw from the said reserve account, once in every six month interval.   The Rial equivalent of the funds will be held with the government’s general revenue account.

C- Part of the balance of the foreign exchange reserve subject to item (A) of this Article shall be exchanged at the prevailing market  rate of exchange, the proceeds of which will be utilized to extend short term credit facilities in order to promote investment and business activities in accordance to the Third Development Plan priorities; and its Rial equivalent will be transferred to the “Rial Reserve Account”  with the Central Bank of the Islamic Republic of Iran, upon assurance of the realization of the Rial income as projected in the annual budget law.

D- Utilization of the “Rial Reserve Account” to finance the government’s general budget shall be permissible merely on the condition of decreasing foreign exchange income from the oil export, as compared with the envisaged figures and inadequacy of tax revenue as envisaged in Table (2) of this Law.  Utilization of  the said reserve account is forbidden in the case of reduction of the government’s general revenue due to decline in the tax revenue.

E- The by-law of this Article to be  proposed jointly by the Plan and Budget Organization, the Central Bank of the Islamic Republic of Iran and the Ministry of Economic Affairs and Finance within three months from the date of enforcement of this Law and will be approved by the Cabinet.

ARTICLE 61-

A- Exchange of the contract agreements for development projects  categorized as research, profit-making and non-profit making projects shall be undertaken only once during the Plan period.  Agreements exchanged for adjustment of annual project funds with the annual budget laws will be considered as amendments; they shall not cause any increase in the targets and number of the projects.  Agreements concerning the exceptional cases leading to an increase in the volume of operations or the number of projects, shall be treated on the basis of the mechanism foreseen in the

Item (B) of this Article.

B- Exchange of new agreement for profit-making and non-profit making development projects shall be permissible merely upon  the following procedures:

   1- Undertaking technical, economic, social and environmental feasibility studies.

   2- Undertaking detailed design studies.

   3- Making sure that there is sufficient funds and/or financing, taking into consideration other commitments regarding the on-going development projects of the concerned executive agency.

Exchange of contract agreements for development projects of exclusively military nature and in the defense sector shall be subject to a special by-law to be proposed jointly by the Staff-General of the Armed Forces, Ministry of Defense and Logistics of the Armed Forces and the Plan and Budget Organization; and it will be approved by the Cabinet.

C- Executive agencies are required to re-evaluate their on-going development projects, as proposed by the Plan and Budget Organization,  in order to simplify and economize their execution, while observing the technical standards.

D- By the end of 1379 (20 march 2000), the Plan and Budget Organization, in cooperation with executive agencies, is required to set priorities of the ongoing development projects on the basis of the appropriated funds, and to determine their completion date, taking into account the extent of the work progress, and the target of economizing and accelerating their execution.

E- The executive by-law of this Article to be proposed by the Plan and Budget Organization and approved by the Cabinet.

ARTICLE 62-Once in the Plan period, government is authorized to  re-assess the fixed assets of the state-owned enterprises whose one hundred percent (100%) shares belong to government and/or belong to the same public enterprise .  The revised value of the appraised enterprise shall not be subject to income tax or any other tax, and the said amount shall be included in the capital gain account of the government or the pertaining state-owned enterprise in the said public corporation.

The executive by-law of this Item and the manner of depreciation of the appraised and depreciable fixed assets shall be proposed by the Ministry of Economic Affairs and Finance and approved by the Cabinet.

ARTICLE 63-The ceiling of public transactions ((subject matter of articles (80), (86),and (87) of the State Audit Act)) on the basis of the CPI Consumer Price Index for 1378(1999) shall be adjusted annually on the suggestion of the Ministry of Economic Affairs and Finance and approval of the Cabinet.

ARTICLE 64-  The current and development credits of this Law shall be allocated among different sectors for inclusion into the country’s annual general budget, taking into account the principles and classification of the government functions as stated in this Article and by observing the following priorities to be proposed by the  Plan and Budget Organization. The  programs for each sector will be formulated in proportion to the envisaged appropriations in  the general revenue and the non-public sector.

A- Performance of the functions concerning the government sovereignty will be financed through the government revenue.  These functions would be beneficial to all segments of the society,  utilization of these services by some will not limit their use by others, and their realization will strengthen the government authority.  These functions include national management and administration of the state affairs, enactment of law and regulations, securing social order, establishment of social justice, defending the country’s borders; and promoting Bassij Forces (People’ Army of Volunteers).

Allocation of the budget for these functions will be commensurate with the efficiency level of the agencies concerned.

B- Functions related to social undertakings whose social benefits are superior to the individual interest and will improve quality of  life of the people , including general education, technical and vocational training programs, health and medicare, physical education; cultural and artistic activities and religious propagation.

The funds required to perform these functions will be financed through the general budget resources and participation of the non-public sector.  The relevant public agencies are required to prepare an appropriate environment for the development of non- public sector and divest part of the government ongoing undertakings to private sector.

One hundred(100%) of the proceeds of divesting such kind of activities to the non- public  sector shall be utilized to expand  the government contribution in the regions where the non- public sector is reluctant to invest.  Enhancing quality of the present public services is also considered as part of this program.

C -The funds required for the implementation of the non-profit development projects, that will strengthen the socio-economic  infrastructures in which no investment by the private sector is expected shall be financed through the government general budget.

D- Public functions related to economic undertakings in the productive and infrastructure sectors shall be financed through resources of the state-owned enterprises and/or enterprises and profit-making entities affiliated with the government and or/ other resources not affiliated with the government general budget, except in cases where the government involvement is justified on the ground of immensity of the investment needed and other considerations.   Approval of the Cabinet will be necessary in these cases.  In the fields of infrastructure investment, in addition to the investment by the state-owned enterprises that are responsible for development of the infrastructures, using their own resources, should the state-owned or non- public industrial and mining enterprises make investment in these fields to meet their own needs, the aforesaid expenditures will be tax deductible.

Part of the government functions in this sector will be gradually entrusted to the non- public sector.

ARTICLE 65- In designing the annual budget bills,  government is authorized to include in the administered funds or through other customary methods, payment of a portion of the funds for the profit making development projects in the framework of the facilities and financial and technical assistance through specialized and developmental banks.  The return from the profit-making projects subject of Article (32) of the Plan and Budget Law enacted in 1972 shall be appropriated to other profit making projects with the same mechanism.

ARTICLE 66- The state-owned enterprises content of Article (11) of this Law and the Islamic Republic of Iran Broadcasting Organization, observing  the related regulations, is authorized to take measures to sell the assets in excess of their own need, except vehicles, through tender, and invest equivalent of one hundred percent (100%) of the sales proceeds in the framework of the approved budget.  The investment funds equivalent to the margin of the nominal book value of the sold assets and the proceeds of the sales shall be exempted from income tax.

ARTICLE 67-  Ministries of “Industries”, “Mines and Metals”, “Energy”, and “Petroleum” are authorized to promote investment and to grant financial and technical assistance to the approved projects in the related sectors for enhancing the design level, equipment manufacturing engineering, mining and exploratory reconnaissance, provide credit facilities from the general budget and in the form of the administered funds entrusted to the banks and pay the interest rate differentials..  The amount of the said administered funds including the credit for payment of the interest rate differentials will be determined in the annual budget law.

In case of necessity, a portion of the credit required for the said projects that are financed by the general budget can be considered as gratuitous aid.  This aid and the interest subsidy to the projects will be determined by a committee composed of the ministries concerned and the Plan and Budget Organization.

The revenues from repayment of the facilities financed through the general budget will be re-used through the above-mentioned method.  The balance of the above-mentioned funds at the end of the Plan period plus the received installments of the said facilities after the termination of the Plan will be utilized  to recapitalize  the specialized banks, the equivalent of which will be deducted from the government debt to the banking sector.

ARTICLE 68- In order to grant financial and technical assistance aimed at enhancing the design capabilities, engineering, and manufacturing of equipment, for development of prototypes for manufacturing machinery, research and exploratory operations, authorization is given to the subordinate enterprises of the Ministries of “Post-Telegraph-and Telephone,” “Industries”, “Mines and Metals”, “Energy”, and “Petroleum”, to finance the projects approved by the general assemblies within the corporation’s internal resources in the form of funds administered by banks and pay the interest rate differentials out of the corporation’s internal reserve. The amount of the said administered funds as well as the payment of the interest rate differentials are  to be provided  in the annual budget of the said enterprises.

ARTICLE 69-  Government is required to formulate the annual budget bills in such a way that any likely budget deficits shall not be financed through borrowing from the Central Bank and the banking system