VAT in each countrys tax system reflects the countrys development-oriented look to economy, and developed countries that are economically dynamic and robust certainly have been successful in using VAT.
Given the need to introduce new tax bases in Iran, the VAT system was implemented in July 2008 and, so far it has had much success in improving tax revenues.
If we want to provide a brief overview of this kind of tax, we can say that the VAT is an "indirect tax" that the consumer (the buyer) pays it along with the cost of purchasing goods or services and the recipient (seller) is obliged to transfer the amount of tax paid to the state treasury. Since the seller himself paid for such a tax, but is not considered a consumer, he is entitled to deduct all of his "value added tax" from the total "VAT" received, and pay the difference to the government.
But what is the position of VAT in the current economic environment and how much tax revenue contributes to the country's economy? According to a survey, instability in the government budget can be detrimental to the long-term growth of the economy. Several factors can affect the instability of the government budget and this instability can be due to economic factors (such as economic growth), political and institutional factors (such as political structure and law) and budgetary factors (such as the combination of government spending and income). One of the effective factors in the instability of the budget deficit is the contribution of value added tax to the composition of taxes. Theoretically, it can be argued that for a given level of tax revenue, the higher the VAT portion of the tax revenue, the lower the instability in the budget deficit. The reason for this is the lower impact of VAT on macroeconomic fluctuations and shocks to the economy.
According to data from 108 countries for the period of 1990-2010, the higher the value added tax, the lower the instability in the state budget deficit. The result could be that the implementation and deepening of the value added tax in Iran would also reduce instability in the budget deficit.
Benefits of VAT include the elimination of traditional tax deficiencies, the creation of sources of revenue to meet the growing costs of the government, the creation of a proper tax system with the performance of regional treaties, the creation of a tax structure change due to its lack of coordination with the economic development process.
With the implementation of value added tax, Iran's tax system has been able to provide support in the development of urban infrastructure. While most of the municipal budget is financed by construction costs, VAT is also one of the main sources of finance for large cities. Even small towns and villages have benefited from this tax, and 3% of the municipal and rural budgets are provided with VAT to provide service and development machinery. Only in 1393, 48,000 construction and service machinery were purchased using VAT revenue and were distributed in cities and villages with less than 50,000 people across the country.
Also, according to the law, one percent of the value added tax is allocated to solving the Ministry of Health's problem of equipping hospitals, importing drugs, and improving the level of refractory diseases.
Therefore, the value-added tax system with its dynamism, accuracy, order and ease can be used to provide part of the resources needed to create and develop urban infrastructure or, in other words, economic prosperity, and only by relying on sustainable resources we can respond to the increasing needs.