Iran’s coupons and taxes: Giving with one hand, taking with the other

To address the dire economic situation, the Iranian government is implementing an electronic coupon program while comprehensively increasing taxes to offset the budget deficit. With the Nowruz Persian New Year shopping and travel season approaching, the administration of centrist President Masoud Pezeshkian has relaunched the coupon program, extending it for at least a few more months, this time online. This initiative aims to provide some relief to citizens during a period of heightened economic activity.

Iran's initial use of coupons dates back to World War II, when the country faced severe economic conditions and famine under British and Soviet occupation, a situation that ended in 1946. However, memories of coupons are mainly focused on their large-scale use after the 1979 revolution. Backed by some global and regional powers, neighboring Iraq invaded Iran to counter the new Iranian theocracy, and the ensuing eight-year war stretched people's lives thin. The use of coupons became a necessary measure to distribute scarce resources during wartime.

Starting this week, low- and middle-income Iranians will each receive subsidies of up to 5 million rials (slightly over $5) to purchase a limited quantity of food items, such as red meat, chicken, eggs, milk, cooking oil, rice, and sugar, at government prices. Approximately 60 million people are eligible for this subsidy. People can only purchase the 11 items from a list of designated suppliers and stores across the country, and these subsidized purchases are separate from the current monthly government cash subsidy of about $4.85. The aim is to slightly alleviate the short-term pressure on households brought about by local mismanagement and comprehensive Western sanctions, which have seen their purchasing power decline for years. This targeted approach seeks to address the immediate needs of vulnerable populations.

The government of the late President Ebrahim Raisi (in office from 2021 to 2024) had twice implemented electronic coupon programs for short periods in 2023 and 2024 to ease pressure. His predecessor, President Hassan Rouhani, also publicly considered using coupons in 2018 after the United States withdrew from the nuclear deal between Iran and world powers and imposed severe sanctions on the country. These previous attempts highlight the ongoing struggle to manage economic hardship.

On the other hand, the Pezeshkian government has been working to cut costs and increase revenue to address budget constraints. The government-approved budget for the Iranian year 1404 (starting March 21) shows a significant increase in taxes and service costs, in many cases far exceeding Iran's current inflation rate of 35%. In order to reduce the country's reliance on oil revenues, successive Iranian governments have been forced to find new sources of income, including through increased taxation, while oil revenues have been affected by the U.S. "maximum pressure" strategy. The Pezeshkian government said this month that it pays for 73% of its current spending (excluding infrastructure spending) with taxes. This shift towards tax revenue is a crucial step in diversifying the economy.

A report by the Iranian Parliament Research Center in February showed that the government's total tax revenue is expected to increase by 53% in fiscal year 1404 compared to the previous year, the largest increase in a decade. The budget projects that the government's total revenue from corporate income tax will surge by 73% compared to the previous year, and revenue from personal income tax will increase by 68%. The parliamentary research department expects wealth and property taxes to increase by 36% compared to the previous year. Import taxes will also increase by 85%, with a large portion of the increase related to government revenue from importing new and used foreign vehicles after the lifting of a years-long ban in 2022. During the Muslim holy month of Ramadan, restaurants and hotels are required to pay for permits to operate while ensuring that no one publicly violates fasting rules, i.e., eating, drinking, or smoking, which is considered a crime under Iranian Islamic law. Taxes have increased months after Iran raised the male retirement age by two years to 62 and increased the number of years men need to work to receive a full pension from 30 to 35. This move aims to reduce worrying pension fund deficits that threaten fiscal sustainability and put more pressure on the government. Amid another freefall of the currency and a persistent energy crisis, the embattled government has also been accused by hardline lawmakers of deliberately devaluing the national currency for short-term gain.

In addition to raising taxes, the 1404 budget also increases the cost of many government services provided to Iranian and foreign nationals, while increasing economic penalties for violations. The fees for issuing national identity cards and passports have increased, and the fees for registering vehicles and motorcycles will also be higher. Several fees related to university and technical and vocational examinations are expected to increase. In particular, as Nowruz prompts millions of Iranians to travel this month, authorities expect traffic fine revenues to increase significantly, as traffic fines will increase by up to 30% by early April. Penalties for many major traffic violations were already tripled about eight months ago, and penalties for several other violations, including dangerous driving or drunk driving, are expected to increase by another 50% next year. These measures aim to generate additional revenue and deter illegal activities.

Authorities plan to charge Iranians attempting to leave the country more, with departure taxes rising by about 30%. Repeated departures will incur additional fees. The state continues to impose economic penalties and file criminal charges against those deemed to have violated mandatory hijab laws. Vehicles may be fined and impounded for weeks if they are repeatedly reported for hijab violations. The Iranian government also plans to increase the fees for services provided to the country's millions of migrants and refugees, including fees for issuing or renewing travel and work permits. The Tehran Municipality announced last month that the fees for services provided to foreign nationals will increase by 54% in the next Iranian year. These price increases will mainly affect immigrants and refugees from neighboring Afghanistan, whose numbers have surged in Iran since the Taliban took over the country following the U.S. withdrawal in 2021. Iranian authorities acknowledge that at least 6 million Afghans live in Iran, which has a population of about 90 million, but some estimates are millions higher. This policy shift reflects the government's efforts to manage the economic impact of a large refugee population.