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Iran: Fiscal Policy
Country Study > Chapter 3 > The Economy > Fiscal and Monetary Policy > Fiscal Policy


Since 1964 budget preparation has been delegated to the Management and Planning Organization (MPO). In addition to the general budget, the MPO prepares fiscal positions of public enterprises and corporations. Since 1987 the MPO has prepared the foreign-exchange budget and submitted it to the parliament with the annual budget. The general budget laws are designed with consideration for international crude oil prices and in conformity with the policies and strategies set out in the existing development plan.

General Government Revenues

The structure of government revenues and expenditures has shifted as the fabric of the Iranian economy has changed. Between 1963 and 1979, oil revenue generated approximately 60 percent of total general revenues. Oil revenue continued to be an important component of general revenues after the Revolution.

In FY 2004 total government revenue was about US$30 billion, 49 percent from oil revenue and 25 percent from tax revenue. Between FY 1988 and FY 2004, the share of tax revenue in government general revenue increased from 4.5 percent to

24.7 percent. Of that amount, 49 percent came from direct taxes and 51 percent from indirect taxes. An objective of the third development plan (March 2000–March 2005) was to increase tax revenue to 10.6 percent of GDP, thus reducing the government’s general revenue dependency on oil exports. After the first four years of that plan, however, Iran remained as dependent on oil exports as before; tax revenue reached only

5.9 percent of GDP in FY 2004 and remained approximately the same in FY 2005. Among the causes cited for the failure to reach the tax revenue goal were a culture of self-reporting (1.8 million businesses and individuals self-reported their taxes in FY 2004), inadequate tax laws and technical capabilities, and corruption. Because the private sector plays a small role in economic activities compared with the state and because some government enterprises are exempt from tax reporting, the tax base has remained very thin. For example, government-linked charitable foundations, or bonyads, were expected to pay taxes of only about US$46 million in FY 2004, although those consortiums are believed to control about 40 percent of Iran’s GDP. Overall, an estimated 50 percent of Iran’s GDP was exempt from taxes in FY 2004. However, for the first time since the Revolution, in FY 2004 the government was able to collect 100 percent of tax revenue projected to come from direct and indirect sources (about US$7.3 billion).

According to the budget law approved by the parliament, the total government budget for FY 2006 was expected to be about US$180 billion. The general revenues approved by the parliament were about US$60 billion (a 7.5 percent increase over the previous year), and the revenues from government enterprises and corporations were estimated at US$106 billion, a 0.2 percent increase over the previous year. One of the sources of tax revenue estimated in the FY 2006 budget law was the tax on oil revenue (projected at US$2 billion to US$3 billion), which was introduced for the first time that year. The total tax revenue estimated in the FY 2005 budget law was about US$14 billion.

In October 2000, the parliament approved establishment of the Oil Stabilization Fund (OSF). The fund was to be financed from surplus foreign-exchange revenues received from oil exports in excess of the figures projected in the annual budget. Between 2000 and 2004, about US$20 billion was deposited in the OSF account. During the same period, US$11.4 billion was withdrawn from this account, with approval of the parliament, for extrabudgetary expenditures such as compensation for the Central Bank of Iran’s claims on the government, repayment of matured government debts, and compensation to farmers for drought years.

Government Expenditures

A general trend toward increased government expenditures began in FY 1972. By FY 2004, total government expenditures had increased more than sevenfold, from US$4.5 billion to US$34 billion. Government expenditures may be divided into two groups: current, or operating, expenditures and capital, or development, expenditures. These two types of expenditure are distributed among four payment categories: general affairs, national defense, social affairs, and economic affairs. Within the development plans, government priorities reflected in budget law influence fluctuations in the relative share of each payment category. Because of changes in the classification of budgetary figures, comparison of categories among different years is not possible. However, since the Revolution the government’s general budget payments have averaged 59 percent for social affairs, 17 percent for economic affairs, 15 percent for national defense, and 13 percent for general affairs. (For a breakdown of expenditures for social and economic purposes, see fig. 10.) The balance of the FY 2004 operating budget showed a deficit of about US$10 billion, 15.3 percent more than the FY 2003 operating budget. The main reasons for deficit growth were an increase in the projected operating budget and a concurrent reduction of tax revenue from public enterprises and corporations. During FY 2004, total government development expenditures were about US$6.8 billion.

In FY 2004 central government expenditures were divided as follows: current expenditures, 59 percent, and capital expenditures, 32 percent. Other items (earmarked expenditures, foreign-exchange losses, coverage of liabilities of letters of credit, and net lending) accounted for the remainder. Among current expenditures, wages and salaries accounted for 36 percent; subsidies and transfers to households accounted for 22 percent. Earmarked expenditures totaled 13 percent of the central government total. Between FY 2000 and FY 2004, total expenditures and net lending accounted for about 26 percent of GDP.

Data as of 2008

Last Updated: January 2008

Editor's Note: Country Studies included here were published between 1988 and 1998. The Country study for Iran was first published in 1987. Where available, the data has been updated through 2008. The date at the bottom of each section will indicate the time period of the data. Information on some countries may no longer be up to date. See the "Research Completed" date at the beginning of each study on the Title Page or the "Data as of" date at the end of each section of text. This information is included due to its comprehensiveness and for historical purposes.

Note that current information from the CIA World Factbook, U.S. Department of State Background Notes, Australia's Department of Foreign Affairs and Trade Country Briefs, the UK's Foreign and Commonwealth Office's Country Profiles, and the World Bank can be found on

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