Iran’s tax system should be reviewed to fix bad loans

Business Materials 16 September 2014 09:45 (UTC +04:00)
Bad loans issue continues to remain one of the serious problems in Iran’s banking system.
Iran’s tax system should be reviewed to fix bad loans

Baku, Azerbaijan, Sept. 15

By Umid Niayesh, Temkin Jafarov - Trend:

Bad loans issue continues to remain one of the serious problems in Iran's banking system.

Abdonnaser Hemmati, chairman of the coordination council of Iranian state-run banks says that the figure surpasses $27 billion, meanwhile 30 percent of bad loans in the national banking system belong to 570 Iranians.

Iran's economy minister Ali Tayyebnia puts the real value of the Iranian banking system's bad loans at $47 billion.

Commenting on the roots of the problem, Jamshid Pajouyan, the former head of Iran's National Council for Competition said that Iran's economy suffers from the differences in prices.

As well as differences in price of fuel and foreign currency in Iran, even an interest rate is different between banks and the free market in Iran, Pajouyan told Trend on Sept. 15.

"Interest rates in the free market are as high as 50 to 70 percent, meanwhile the figure in the banks is 24 percent," he explained.

On the other hand, Iran's economy seriously suffers from difference in rate of return on investment (ROI) in various economy sectors, Pajouyan underlined.

For instance rate of the ROI in industry is about 6 to 7 percent, meanwhile the figure for housing and trade reaches 100 percent, he noted.

This huge gap encourages persons who have received cheap rated credits from the banks to defer payment and receive more income despite even the delay fines which are low as well, Pajouyan stressed.

He stated that the investors prefer to invest in sectors which have higher rate of the ROI, while Iran's tax system is not able to bring close the net return on investment.

Pajouyan believes that the bad loans problem could not be resolved while the taxation system is not reviewed.

The country's banks themselves prefer to move towards investment in lucrative sectors such as housing instead of paying credits, he underlined.

While responding a question about short-term solutions for the issue, Pajouyan said that the economic policies, particularly tax policies should be reviewed.

For instance, the administration can re-establish "tax on total income" which was removed in 2001, he said, adding the system can bring close net return on investment.