Impact of a VAT Implementation on Inequality in Iran: (Equity Impact of a VAT Implementation in Iran: A Survey

It is quite sometime now that the design and implementation of a VAT has turned into a debate in the pubic finance in Iran. But, as it has always been, the impact of a VAT on inequality is a major concern in making a decision for its implementation. This paper, using the analytical method, intends to make an estimate of the possible impact of a VAT on inequality in Iran on the basis of the five suggested possible scenarios. Using the selected model and national input-output table, it tries to calculate the share of present indirect taxes or future VAT in the prices of the goods and services in each scenario. The results are then compared with household consumption, using the ISIC classifications. By estimating the Engle Curve for each consumed item in the household budget, the cost of the VAT implementation for each ten brackets of the of the household is then calculated. Putting the resulting figures in two groups of distributional and tax system equity indicators, reveals the regressively of the tax in all five scenarios. However, measuring the importance of the impact it could be safely concluded that the inequality variable in Iran would not be significantly affected by the implementation of a VAT.