The Role of Value Added Tax in Municipalities Financial Affairs

The establishment of the Value Added Tax (VAT) system in Iran is considered a drastic change in tax system of the nation. Such a change would bring about new expectations and requirements by the government, the taxpayers, and other beneficiaries and would subject the taxation system management to new issues to cope with. To establish such a system, the most important condition is to set an appropriate social and economic ground so that a unified management and a flourishing economy could be achieved. The municipalities in our country have made efforts to pave the way for actualizing sustainable revenues, and VAT is one of the most effective ways to achieve it. In effect, the purpose of such a tax system and of passing laws related to the municipalities is to sufficiently inform the revenue collectors and offer better services to the citizens. This article takes a practical approach to the issue and, via reviewing the related literature, provides an introduction to VAT, the calculation whereof, and its modeling and simulation. Then, the article investigates into the relationship between VAT and the municipalities and their financing system.