Journal of Tax Research

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Abstract The main objective of the present study is to estimate the size of tax evasion in the economy of Iran. The present study applies the multiple indicators multiple causes (MIMIC) methodology in Iran economy for the period between 1970 and 2007. The results show that the size of tax evasion has fluctuations during 1970 and 2007 and the size of tax evasion is increasing. The results show that tax burden, the size of government, taxpayers’ income, inflation rate and unemployment rate are the main causes of extension of tax evasion in Iran. The most important causes of tax evasion, which lead to the high extension of tax evasion, are the size of government, tax burden and taxpayers’ income.

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Iran’s economy has been always under pressure to provide resources for public spending and it is limited by a tax system that causes disruption in the behavior of economic agents; therefore, it is expected that the country’s tax system can be improved via inspiring by the global tax reforms. The opponents argue that the lack of comprehensive tax information system, low administrative capacity of the Tax Agency and   taxpayers, and different economic structure of Iran make such reforms impossible in Iran. But it must be emphasized that Iran’s economy will face three major challenges in the field of social security, reduced tax revenues from international trade and competitiveness in the near future. Therefore, expanding the tax bases and lowering the tax rates is necessary in dealing with these challenges, and this is possible through the comprehensive income tax system. The main objective of this study is to investigate and compare the comprehensive income tax system and its adjusted versions with the tax system in Iran. The results show that the Iran’s tax system is very complex and violates the principles and objectives of tax reform in many cases. Furthermore, high tax burden on companies, high rates of social security, and widespread tax evasion in the self-employed section are among the features of the Iranian tax system which apart it from other common tax systems in the world. In order to reform the tax system in Iran, the best method is fundamental reforms based on the comprehensive income tax system, if it is not possible for any reason (the lack of prerequisites or political consensus), we can do some adjustments (reform in a scientific framework based on tax expenditures and economic interests; simplifying the tax system; bias correction in providing corporate finance method and mitigating double taxation ;threshold for exemption based on relative poverty; adjustment of tax threshold, depreciation, and interest deductions for inflation; change of executive system from tax-based structure to functional basis structure; improvement of tax justice perception; change the tax unit from the individual to the family; providing tax system without having to provide tax returns from taxpayers) to improve  the existing system.

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 According to the rules of jurisprudence, any damage caused by any person to another must be compensated. The narrations indicate that the Islamic State is obliged to compensate the damages caused by its agents to the others.  However, Direct Taxes Act considers any damages resulting from the intention, negligence and oversight of tax officials to be subject to civil liability. This approach does not match with the serious occupation of these agents and the auditing principles. Due to the fact that it is impossible to review all tax documents of business units in auditing and today reviewing all documents is an unprofessional act, so tax auditors are exposed to risks.  On the other hand, tax officials face a lot of legal questions. Violation of the directives and opinions of the Supreme Tax Council by the Court of Administrative Justice and the weak legal structure of the Tax Affairs Organization, deprive the possibility of creating a clear procedure in legal affairs and create many ambiguities for tax officials. And they have remained accountable, accordingly, to the taxpayers, civil liability based on some kind of fault in cases of malice, unforgivable negligence, and disregard to the explicit text of the law is appropriate.