In order to achieve economic goals including price stability, less unemployment, economic boom and improvement in the balance of payments, governments need to finance their expenditures. Major source of governments’ revenues is tax in most countries because of the less undesirable effects of it. Generally, more dependency of governments to the tax revenues indicate healthier economy. The mentioned fact is approved by the relationship between “freedom from corruption” and “tax revenues” data.

As a sample, China, United states and Iran’s data has been considered. According to the table below, less corruption will be resulted from more share of tax revenues in countries’ GDP (assuming that other factors are constant):





 *” Freedom from corruption” index ranks 183 countries based on their lack of corruption. It should be noted that larger numbers mean less corruption.

Taxes are divided into two main categories including direct and indirect taxes. Direct taxes are paid by individuals or organizations while indirect taxes are levied on goods and services rather than on incomes or profits.

Briefly, information about different kinds of taxes in Iran is shown in the table below:



*Unit: thousand billion Rials

One of the types of indirect taxes is “value added tax” (VAT). VAT is calculated based on the surplus value which is added to final price at each stage of production. The VAT bill presented in Iran’s parliament in 1987 for the first time, but despite the ratification of the bill, because of the special economic conditions of the war, it was suspended. After that, there was no serious effort in this regard until 2001. Draft of the VAT bill was sent to the parliament after approval by the council of ministers. Finally, the VAT was enforced as a law in 2008.

Trend of value added tax in Iran for last 5 years is shown in the chart below:



The value added tax has some positive and negative consequences simultaneously.

Positive outcomes of mentioned law are:

  • Expanding the tax base
  • Stability of governments’ tax revenues
  • Flexibility in policy making
  • Reduce the problems of debts collection
  • Decreasing tax evasion
  • Improving the information about taxation structure
  • Reduce the time lag of debts collection

Negative outcomes of VAT include:

  • High executory costs
  • Increase the size of governments

To sum up, the major source of funding governments’ expenses is tax in most developed countries. Unfortunately, in Iran’s economy, the main part of governments’ revenues is from energy sector. Due to instability of foresaid revenues, the key role of tax in governments’ budget is highlighted. Low tax revenues beside advantages of value added tax show the necessity of the implementation of the VAT. Affirmative effects of VAT are clear but it should be noted that some actions like social security system reformation, informing people and stability in economic conditions are necessary in order to reduce VAT possible negative effects.