Measuring the Effect of Goods Exemptions on the Gini Coefficients and the Degree of Regressiveness of Value Added Tax; A Comparison between the Value Added Tax Low of 2008 and its Amendments in 2020

Document Type : Research Article


1 Associate Professor, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran

2 Assistant Professor, Faculty of Management, Kharazmi University, Tehran, Iran


Value-added tax is a type of consumption tax that encourages investment and production by strengthening savings incentives. However, its regressiveness nature is a weakness of this type of tax, and because of the higher tax burden imposed on low-income deciles, it has adverse effects on income distribution. In the face of this problem, two approaches have been adopted in the countries implementing the VAT system; the first is to exempt the group of goods that have a high share of low-income households' spending baskets, and the second is to design a multi-rate tax system so that luxury goods and services are subject to higher tax rates. Iran is also one of the countries that, by focusing on the first approach, exempted a number of goods and services from the VAT law approved in 2008 and expanded the scope of these exemptions in the recent amendments approved by the parliament in 2020. In the present article, using household income-expenditure data in 1397, the effect of applying each of the above tax structures on the degree of regressiveness and Gini coefficient has been evaluated. The findings of the article indicate that first of all, the implementation of the value added tax structure approved in 2008 reduces the intensity of the tax burden of rural income deciles, but does not have much effect on urban income deciles. Secondly, the extension of exemptions in the amendment approved by the parliament in 2020 compared to the previous law in 1387, not only does not help improve the severity of the regressiveness of VAT, but also increases the tax burden on all income deciles of urban and rural households. Third, exemptions do not have a significant effect on the Gini coefficient and cannot improve income inequality. Given that expanding the scope of exemptions has virtually no role in reducing income inequalities, it is recommended that while limiting the scope of exemptions, a logical framework for exemptions be designed.


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