A Model of Tax Support on Charitable Giving in Iran (A Revision of Article 172 of Direct Tax Act with Tax Credit Approach)

It is obvious to all governments that the philanthropic donations of private sector plays a pivotal role in reducing the gap between social classes, increasing welfare of those in need and decreasing state expenditures, and also the charities are misused by the people who commit tax crimes and money laundering. According to the Iranian Direct Tax Act (Article 139), charitable giving received, is exempted from tax and charitable payments are offered tax privileges in the form of deductions under special conditions. The world experience and present literature indicate that this model has various difficulties which make the most countries of the world revise it and they are moving from the deduction system to the tax credit system. In respect to the importance of this issue and unique role of state tax system in encouraging charitable giving and supervising this sector and besides to the article 119 of the Fifth Development Plan obligation in substituting tax credit policy for statuary exemptions, there is an urgent need to revise present support policies in this section. Therefore this paper tries to present a model of tax support (incentives) for charitable giving. Non- refundable tax credit with two different rates for different levels of charitable giving is introduced as a substitute policy for the present system of supporting charitable giving in Iran.