Estimating the Policy Gap and the Compliance Gap in Iran's Value-added Tax System and the Need to Extract a Rational Framework for Granting Exemptions

Granting exemptions in the value -added tax system, in addition to increasing the cost of compliance, increasing administrative costs, disrupting the selection of inputs for the benefit of imported intermediary inputs, vertical integration and strengthening the self supply, will also result in significant loss of tax revenues. In this paper, the policy gap and compliance gap resulting from the granting of exemptions in the value added tax system has been calculated using the Input-Output Tables (156 * 156 in size) and the national accounts of the country between 1388 and 1395.
The results of the calculations indicate that during the pilot implementation of the value added tax, about 260,000 billion Toman have been lost in tax revenue. The government's share of this tax loss was 157,000 billion Toman. The share of municipalities has been over 103,000 billion Toman, which is more than 2.3 times the total amount of funds transferred to the accounts during the enforcement of the law.
According to the findings, the present paper contains two policy messages: Firstly, in the process of reviewing the value added tax bill, the expansion of a circle of exemptions should be strictly avoided. And secondly, the exemptions that have no scientific logic and are not observed in other countries are removed if possible.