Simulation of the Impact of Value-Added Tax Rate Changes on Iran’s Economic Sectors Using the ORANI-G-IR Computable General Equilibrium Model

Taxation is one of the primary fiscal policy tools available to the government, playing a crucial role in economic growth, price stability, and promoting social equity. The value-added tax (VAT) law serves as an effective alternative to many indirect taxes and fees that cause significant distortions across economic sectors. VAT, by addressing shortcomings in the tax system, can provide a reliable income source for the government. Since the introduction of a pilot VAT law in 2008 and the enactment of a permanent law in 2021, Iran’s tax system has faced various legal and operational challenges. This study simulates the effects of VAT rate increase shocks across three scenarios (12%, 15%, and 20%) on Iran’s economic sectors using a computable general equilibrium (CGE) model based on the ORANI-G-Iran model and a 2016 input-output table. The results indicate that higher VAT rates lead to increased inflation and investment while reducing GDP and consumption.