Depreciation allowances: A comparative study

In this paper, depreciation allowances stipulated in the Iranian tax laws arecompared with those of some selected countries. Buildings, some assets used in theenergy sector and intangible assets were selected among fixed assets forcomparison purposes. The rationale behind selecting the above-mentioned assetsconsists of such issues as the large share of buildings in the total assets of mostfirms, the large share of the energy sector in the Iranian economy as well as theoverall importance of intangible assets and their being neglected in most studies. Itis difficult to compare depreciation allowances on a cross-country basis due to thediversity of calculation methods. In order for the comparison to be possible, thenominal percents of asset recovered costs in periods of 5 and 10 years were used,instead of rates or methods of depreciation. The results show that as compared withmost of countries in question, the Iranian tax laws provide more incentives in casesof such assets as buildings, patents and licenses and weaker incentives for theenergy sector assets and goodwill. The findings also indicate that the high inflationrates in Iran could reduce the incentive effects of depreciation allowances. Thepaper has ended up in the presentation of some policy recommendations and someproposals for the adjustment of depreciation rules in Iran.