Baku, Azerbaijan, June 5
By Farhad Daneshvar - Trend:
Stock brokers have expressed contrary opinions on the possible outcome of a recent decision by Iranian government on exemption of some financial services from paying value added tax (VAT).
While Iranian capital market has been down over the past two months, a group of market observers have expressed hope that the government's recent decision would help the market to climb out of the recession.
However, there are some other brokers who believe the decision on tax exemption is unlikely to have a positive impact on the market's current situation.
The Iranian capital market slipped into recession after it demonstrated a positive reaction to the implementation of the Joint Comprehensive Plan of Action (JCPOA) Jan. 16, resulting in the removal of nuclear-related sanctions imposed on the Islamic Republic's key energy and financial sectors.
The Iranian National Tax Administration (INTA) released a directive June 1 announcing a list of financial services which are exempt from VAT.
Exemptions unlikely to help market
A financial manager in Tehran has told Trend that that there is no relation between the directive on exemptions and current recession on Iranian capital market.
"Tax exemptions will not have any impacts on the downward trend on the capital market as the directive is not anything new. The brokerage companies have been entitled to the exemptions over the past three years," Hossein Khezli Kharazi, CEO of Iran's Bank Keshavarzi Securities Company, said in an interview with Trend June 5.
Although the directive has been recently announced, financial services have been enjoying its advantages over the past three years as the regulation on tax exemption was earlier passed, the CEO explained.
There were some differences between the Securities and Exchange Organization (SEO) and Iranian National Tax Administration (INTA) over the implementation of the regulation which are now resolved with the official announcement, he noted.
Exemptions to remove ambiguities
Ali Eslami Bidgoli, a board member of Iranian Society of institutional investors, has expressed a conflicting opinion.
Eslami Bidgoli believes that the new directive will help reducing ambiguities on the Iranian capital market which will eventually lead to the growth of capital market.
He suggested that reducing the tax rates on the capital market will also contribute to increasing the number of trades on stock markets, Iran's Securities & Exchange News Agency (SANA) reported.
The recent directive will help increasing the public trust on the capital market, he stated.
INTA directive on tax exemptions
Under the recent directive, the fees which brokerage firms, stock exchanges, over-the-counter (OTC) market, Central Securities Depository of Iran, and Tehran Securities Exchange Technology Management Company receive on transactions of securities will be exempt from VAT.
The directive also exempts the Securities and Exchange Organization from paying VAT for the fees that it receives as its right to monitor the securities transaction in stock exchanges and OTC.
The fees that companies have to pay to be allowed to sell their shares or their goods in stock exchanges are also free of VAT.
Meanwhile, membership fees received by exchanges, OTC and other financial entities are free of VAT.
The financial entities registered with the Securities and Exchange Organization (SEO) will be free of paying VAT for the fees they receive for offering advice and consultation, portfolio management, underwriting commitment, and for guaranteeing securities.
All investment banks registered with the SEO will not either need to pay VAT for the fees they receive for offering services.
The fees on Murabaha, an Islamic Financial Instrument, and other Islamic bonds are also free of VAT.
The fees which Central Securities Depository of Iran receives for offering services to help traders transfer or clear securities are also exempt from VAT.
Farhad Daneshvar is Trend Agency's staff journalist, follow him on Twitter: @Farhad_Danesh