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Foreign Exchange

Tax reform tackles the foundations

Iran's  State Tax Organization (STO) last month made its ambitions clear: in 2004/05 it is aiming to gather enough tax revenue to cover almost half of government expenditure. To achieve this it needs to record a 38% year-on-year increase in tax collection, or total revenues of almost $11 billion.

Around 10% of the increase is intended to come from the planned introduction of a flat-rate 7% value-added tax from 2005. The STO also hopes that some of the increase will come from a crackdown on tax avoidance among both the general population and the quasi-state charitable foundations known as the bonyads.

Built essentially on businesses that were expropriated following the 1979 Islamic revolution, the bonyads are active in practically every economic sector and are estimated to constitute 10% to 20% of the economy.

Run by religious hardliners and their lay allies from the traditional merchant class, they operate as independent corporations, although their management is usually appointed by the supreme leader.

Although little is known about the bonyads' finances, it is thought that many of their businesses are loss-making. Mostazafan and Janbazan Foundation (foundation of the oppressed and disabled war veterans) is one of the largest and, together with its affiliates, runs more than 400 major companies and factories.

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