An estimation of business and profession / corporate income tax efficiency in provincial tax offices

Estimating tax capacity of a region or of the whole country provides theinformation needed for responding to financial and executive problems resultedfrom the implementation of economic policies. The present study aims atestimating tax capacities of the two tax categories, “business and professionincome tax” and “corporate income tax” in the Iranian provinces through makinguse of the data of some effective variables. To this end, we have explored thevariables involved in tax revenues of the provinces, and by using data of 28different provinces within the time span 1379-1385 (2000-2006), we have resortedto SFA method to estimate the efficiency of each tax category in question in any ofthe Iranian provinces. According to the findings obtained, as for the business andprofession income tax, the average tax efficiency of developed provinces(excluding Tehran Province) for the period in question has been 72.3% while it hasbeen 66.5% in less developed provinces. And as for corporate tax income, theaverage tax efficiency of developed provinces (excluding Tehran Province) hasbeen 47.8% while it has been 72.4% in less developed provinces. The presentresearch has calculated the “tax inefficiency” of each province as the gap betweenthe potential and realized legal capacities. As for tax effort indices, the results showthat over time, the average tax effort has decreased for business and professionincome tax but it has increased for corporate income tax.