Tax is one of the major sources of financing the government expenses. Although the government’s financing sources is not limited to the tax revenue and it can be relied on other sources like: income on oil, gas and mineral resources, but tax revenue is more stable and reliable than others. Because the tax revenue is a portion of national income, it can be assumed as an index for measuring situation of public and private sectors in the economy.  Most of oil producing countries allocate their oil income for financing a significant portion of their annual expenditure. Since the oil revenue of governments depends on oil price in international markets, the volatility in oil price leads to volatility in government’s revenue. These volatilities can have an effect on long-term plans. As a result, the governments of these countries are trying to finance the majority of their expenditure by tax revenues. The average share of; tax revenue in GDP, government expenses in GDP and share of tax revenue in government expenses for Iran and a few other countries during 2010 to 2014 has been shown in the table below:

share of tax in GDP in selected countries  2010-2014
country tax revenue (% of GDP) expense (% of GDP) tax revenue (% of expense)
Iran 7.5 22.5 33.3
Oman 2.5 30.2 8.2
Nigeria 3.0 7.0 42.9
Turkey 20.7 34.4 60.2
Sweden 26.4 32.8 80.6
World 14.7 28.0 52.3

 

* Source: World Bank

As we can see, more than 50 percent of government’s expenditure in different countries had been financed by taxes while in oil producing countries this ratio is generally less than 50 percent. The average ratio of the world tax revenue to GDP is about 15 percent while this ratio in oil producing countries is less than 10 percent. Share of tax revenue in GDP for Iran during 2010 to 2014 is about 7.5 percent which means this ratio is about half of the world`s average.  The percentage of each sources of government’s revenue that categorized into oil, taxes and other revenues from 2000 to 2015 has been shown in the table below:(Other revenues include of revenues from transfer of capital assets, participating bonds and etc.)

 

Portion of each category of revenue in Iran’s yearly budget
date oil (% of expense) tax revenue (% of expense) other (% of expense)
2000 56.8 35.0 8.2
2001 57.3 33.3 9.4
2002 62.1 30.6 7.2
2003 61.7 31.3 7.0
2004 59.0 33.1 7.9
2005 48.1 34.7 17.2
2006 43.9 36.6 19.4
2007 36.7 40.6 22.8
2008 36.2 40.2 23.6
2009 25.2 48.0 26.8
2010 53.0 34.7 12.3
2011 51.0 32.3 16.7
2012 42.7 39.6 17.7
2013 43.4 40.7 15.9
2014 38.3 43.2 18.5
2015 30.5 45.5 24.0

 

As it is shown, tax share in government’s revenues had been less than 50 percent during 2000 to 2007 and 2010 to 2013, in addition the share of oil’s revenue had been greater than the share of tax revenue in the budget. Because of economic sanctions which leads to decrease in export of oil and difference between real Dollar price and its official price, the share of oil revenue was less than share of tax revenue in the government’s yearly budget during 2007 to 2009. Decrease in oil price and reforming tax laws leads to an increase in share of tax revenue in budget during 2014 and 2015. Reforming in taxation structure and extending it in 2010 led to an increasing trend in the share of tax revenues in budget since that year.

It seems increase in tax revenue is a result of reforming and extending of tax laws, this means the mentioned increase is not caused by changing in constant and variable taxes. Tax evasion and imbalance in taxation is an important problem which Iran’s economy is facing at the moment, this means about 77 percent of guilds do not pay their taxes. The government intends to transparent guilds’ business environment for increasing tax revenue without increasing tax rates. The result of this fiscal policy might be offset because of considering government’s subsidy payments to the industries in deprived areas and less developed industries.