Computing Iran's VAT Expenditures

A basic requirement of a public sector budget is comprehensiveness. Tax expenditure، which is one the government expenditures should be included in the budget process. In general، tax expenditures refer to the special tax provisions that give favorable tax treatment for an activity or a group of taxpayers (e. g. tax allowances، tax deduction، tax incentive، tax exemption، tax credit، tax rate relief and tax deferral) in order to achieve different social، fiscal and economic goals (Nordic working group، 2010:6)، but lead a deviation from a baseline tax system. Accordingly، tax expenditures is the tax revenue forgone resulting from any discriminatory or preferential tax treatment with some taxpayers. Instances of tax expenditures can be different in various countries’ tax laws and contain a range of favorable tax treatment. In this paper، after introducing the normative baseline for Iran’s Value Added Tax system (VAT)، regarding to identifying 17 tax expenditures instances through the provisions of the VAT law، the VAT tax expenditure via the revenue forgone method has been computed by using available data of the 10 instances of VAT expenditures for years from 2009 to 2012. The ratio of VAT expenditures to VAT revenue has had decreasing trend and an average of about 66 per cent during the mentioned years.