Regional Justice in Value Added Tax

According to Value Added Tax (VAT) Act, 3 percentage point of VAT revenue is the tax share of municipalities. The optimal method of distributing this tax share among municipalities is a question worth further inquiry. According to the prevailing method taxes are distributed among municipalities that taxes are collected inside of their territories. By implementation of this method half of tax share assigns to the municipalities of Tehran and Isfahan, while the municipalities of Ilam, Kohgiluyeh and Boyerahmad, South Khorasan, Northern Khorasan and Chaharmahal Bakhtiari have 2 percent of distributed tax. Obviously, the continuation of this method not only will not reduce the regional disparities in the country, but .also persists and exacerbates inequalities This is why the allocation mechanism of VAT revenues is considered to be reformed in the VAT bill. The findings indicate that if resources are collected nationally and the municipalities' share is distributed according to the ”regional consumption“ among provinces, and in each province, according to the ”population“ index, regional inequalities will be diminished. It should be noted that this paper focuses solely on the regional equality aspect in tax sharing, so surveying other dimensions, such as balancing regional needs and expenditures, the cost of being capital or central city, and the capacity of local governors in managing allocated resources require other studies.