The Government’s Incentive Program
Compiling an incentive program by the government alongside the proposed bill to the Parliament to increase competitiveness and improve the country’s financial system indicate President Rouhani’s resolution on addressing the stagnation once and for all; a situation which has paralyzed the country’s economy over the past few years and has seriously damaged several industries.
Compiling an incentive program by the government alongside the proposed bill to the Parliament to increase competitiveness and improve the country's financial system indicate President Rouhani's resolution on addressing the stagnation once and for all; a situation which has paralyzed the country's economy over the past few years and has seriously damaged several industries.
Sixty Percent of Loans to Go for Production
President Rouhani and his ministers recently attended the Headquarters of the Islamic Summit alongside a number of industrialists and economists to explore solutions for overcoming stagnation. Addressing liquidity, increasing production units and increasing the banks' working capital are among the highest priorities in the government's incentive package for stag-exit. If executed correctly, the new incentive program will effectively alleviate stagnation in the country's industry.
Granting IRR2500 billion to production units in the present year and allocating IRR1300 Billion of which as new loans are the latest promises of the governor of Central Bank. The Minister of Industry, Mines and Trade also insisted that 60 percent of loans will be granted to production units with the approval of Money and Credit Council of Central Bank. The development of leasing for substantial and durable goods is another effective step towards the renovation of production. Leasing was expected to lose its real function over the past few years, but Mohammad Reza Nematzadeh declared that leasing will become functional again.
The Minister of Industry, Mines and Trade also looks forward to improving the business environment, supplying liquidity especially the working capital, increasing non-oil exports and introducing debt relief for defaulted loans. Nematzadeh asserted that the ministry of Industry is one of the driving forces behind economy by comprising 40 percent of the country's GNP and said: "Improving the business environment, supplying liquidity and working capital and increasing non-oil exports are the government's ways out of the stagnation."
The minister spoke of the announcement of Iran's Business Facilities Ranking by the end of Rouhani's first term at the office as well as the convergence of all ministries in this regard and stated: "According to World Bank's indicators, Iran ranked 152th in 2013, but the ministry of Industry, Mines and Trade committed to reaching below 100 by the end of Rouhani's presidency. We have established an office in the ministry of Economic Affairs and Finance specifically for this purpose.
Nematzadeh added: "The government passed two bills on enterprises in the past few months and attempted to establish balance and composure in economy through scientific principles and well-thought-out policies. He highlighted facilities for entrepreneurs, customs administration, minimizing the time for issuing documents and permits and reducing the categorizations of customs tariffs from 14 to 6 as the focal point of the meeting and maintained that these facilities will improve the business environment in the country.
Remission of Debt Penalties
The relief of tax penalties was another bone of contention in the meeting and the Minister of Industry emphasized on the government's willingness to forgive economic enterprises on late payment penalties. He said that the ministry of Industry has compiled a law consisting 30 articles for fighting economic stagnation and called for the cooperation of the members of the Parliament in this regard.
Nematzadeh explained: "The bill addresses the relief of penalties related to tax penalties. Furthermore, the bill suggests that in case stockholders and third parties inject liquidity to production units, they will be acquitted of tax penalty as much as they invest in enterprises. This is the first time that such program in about to be implemented in the country.
Granting a hundred percent tax relief to private business was another important topic discussed in the meeting. The Minister of Industry called on Iranian National Tax Administration (INTA) to remit the tax penalties of production units and in case they are invested by non-government enterprises, they will be clear of tax payment exactly as much as their investment.
Nematzadeh went on to say: "Should foreign companies utilize the present capacities and renew their investments in the country while producing 30 percent of products with their brands, they will be granted a 50-percent tax relief. The government is committed to introducing the rates and the procedure of clearing debts as soon as possible."
Introduction of the Strategic Document within Three Months
Nematzadeh has insisted on the compilation of the Strategic Document of the ministry of Industry, Mines and Trade in the past few months. The Minister has committed to presenting the Strategic Document of the Ministry of Industry to the council of ministers within three months.
Nematzadeh insisted that he has done everything necessary to lodge the Document in time. According to him, the council of ministers has defined a series of tasks for Customs Administration and Iranian National Standards Organization as well. Customs Administration is responsible with compiling a multipurpose memorandum of understanding to facilitate the transit of transportation companies, whereas Iranian National Standards Organization is tasked with reducing the number of obligatory export standards. The Organization is also required to minimize the number of mandatory standards of export and import of goods and compile export standards in agreement with the rules and regulations of other countries.
The minister further stated: "We are planning to improve the facilities and trade conditions of importers and exporters along the borders with the cooperation of provincial governors. We are tasked with developing the leasing of durable and capital goods and regulate leasing tariffs in accordance with Islamic contracts. The improvement of leasing is on the top of our agenda."
Twelve Articles to Strengthen Enterprises
Nematzadeh spoke of increasing the capitals of enterprises and said: "Twelve articles of the government's proposed law to the Parliament are associated with strengthening Banks and bartering the debt of production units. The share of enterprises of working capitals from the total banking credits will increase to 60 percent and this will effectively deal with the hurdles of production."
The Minister discussed the facilitation of warranties for contractors and said: "We still have trucks of over 35 years old on our roads. The replacement of old trucks will reduce the fuel consumption of these vehicles by 80 percent."
The proposed law also addresses the issues regarding Securities and Exchange Organization, participatory notes and the optimization of greenhouse gases.
The Minister of Industry, Mines and Trade criticized the process of privatization over the past few years and stated: "The privatization was more in favor of the previous administration than the private-sector. State-owned enterprises used to take in a part of their profit and the rest went for investment, but now it is like all parties congregate and distribute the profit, whereas the profit must be accumulated and invested in development."
Nematzadeh concluded: "We are trying to establish an artificial capital market, while the capital market arises from production. Our domestic market is vast and strong, but it is proven to be small for manufacturers and one of our plans is expanding non-oil exports."
The Government Must Pay Penalty
The president of Iran Chamber of Commerce was another prominent figure who attended the meeting. Gholam Hossein Shafei stressed that the government must be charged with penalty for late tax payment and said: "Regarding monetary policies, the private-sector advises the government that under economic stagnation, it would not be wise to increase taxes, but that tax rates must decrease. Furthermore, the government should chiefly focus on the tax system, tax collection and gathering extensive information for the improvement of this sector, because taxes comprise little share of government revenues at the moment."
Shafei stated: "Unfortunately tax rate on production is low and the issue must be addressed in the government's incentive program. The program needs to include tax incentives for production units with the aim of creating more jobs and ultimately, the renovation of economy."
The president of Iran Chamber of Commerce also said: "The private-sector solemnly requests the government to collect the taxes of all state-owned companies, organizations and institutions. The private-sector seeks justice and equality." He appreciated the effort of scrutinizing the public debt and said: "This move is a huge step forward from talking to walking. I believe that the country's economic stagnation is deeply rooted in exchange market and the way out of the present stagnation is the improvement of business environments and the production cycle."
Shafei called on the government to pursue the matter of non-performing bank loans on a systematic basis and also clear their debt to the banking system. The government's earnestness on the subject will urge different sectors to clear their debts to the banking system and consequently, banks will be able to grant larger loans to economic sectors.
Shafei also encouraged the Iranian administration to clear its debts to contractors and said: "The government is keen on issuing leasing bonds as a practical step towards clearing its debts."
He lamented the government's disregard for small and medium enterprises in the incentive package and said: "Banks mostly tend to grant loans to large enterprises. The government needs to make sure that small and medium enterprises will be able to receive loans no less than larger organizations."
Shafei asserted: "Central Bank along with the government must revise the banking system. Revenues of banks are on the rise, but if the same old lingering issues are not effectively dealt with, we cannot possibly be optimistic to reach our objectives. We expect Central Bank to strictly monitor the banking system and embark on the revision of the system. Proper measures must be taken to prevent banks from investing in non-productive ventures.
The president of Iran Chamber of Commerce insisted that the government's incentive package does not include incentives for developing non-oil exports either and went on to say: "Incentives will effectively increase non-oil exports and subsequently decrease our dependence on crude oil. Of course I should thank President Rouhani's administration for providing a favorable atmosphere for better interaction of the private-sector with foreign traders, but the government needs to implement incentives for expanding exports nonetheless."
Speaking of the critical situation of the country's industry and mine sectors, he said: "We need to take immediate measures, but we should not be distracted from our long-term plans and prospect. Bear in mind that we cannot prescribe a single solution for all industrial sectors, but what we need is strengthening the country's industry based on priorities. Moreover, production units are on the road to increasing production capacities and the government should not interrupt with reckless policies."
The Omission of Order Registration
Several specialized forums were held alongside the meeting with the participation of respective ministers. The minister of Industry, Mines and Trade attended the specialized forum on exploring industrial and trade policies of the government with the aim of curbing the stagnation and spoke of the omission of order registration by the end of the year. Nematzadeh asserted that order registration was essentially an absurd idea and explained: "We are looking forward to closing down order registration by the end of the year."
The Minister of Industry further answered some questions.
"I admit that some rules and regulations are cumbersome and only impede economic activities. We need to revise and optimize the regulations and we have established a committee to that end. I insist that we are doing our best to remove inefficient rules and regulations," Said Nematzadeh.
He declared: "The government's incentive package for stagnation requires Iranian National Standards Organization to remove some of its mandatory standards. I, for my part, toiled long and hard until I finally managed to remove Iran Code and Shabnam Code. It is not to say that some of the members of the Parliament and players in the industry want Iran Code back, but I firmly believe that it was an effective measure which only inflicted more costs on producers and importers."
The Minister of Industry also said: "Those who truly invest their capital for the benefit of the public should be embraced and supported and officials must pave the way for them to serve. On top of that, order registration was a wrong move from the beginning and we will omit that by the end of the Persian calendar year. I had previously advised officials that order registration will do more harm than good, but they did not heed my warning and they are paying the price."