The exchange rates were mostly affected by the political environment and news in a turbulent market which even saw the exchange rate of 180,000 rials for a dollar, something referred to as a “forex market shock”.

Although the high rate of 180,000 rials (in last September) was not real, the government came to act and take the control of market.

The measures seriously taken and continued by the government and Central Bank of Iran (CB) led to a more realistic market in which the rates are set based on the economic realities of the country.

No wild ride, the rates are now coming down in a calm market.

Economic experts believe that the noticeable drop recently witnessed in the exchange rates (for dollar falling from 130,000 rials to lower than 120,000 rials) has been mainly the result of forex management measures taken by CBI.

That’s true and CBI Governor Abdolnaser Hemmati said on Monday that the value of Iranian rial is recovering against the U.S. dollar as the CBI policies for shielding the currency against the U.S. sanctions are taking effect.

He said the foreign currency exchange market is stabilized.

“Of the CBI’s measures which led to this stabilization in the forex market it could be referred to injecting more foreign currency into the market in a controlled way over the past month which did not led to a sudden drop in the rates, because such drop would again result in rise of the rates”, according to Mehdi Sadeqi Shahedani, an economist.

The economist believes that CBI strengthening its supervision over NIMA has been resulted to injection of more foreign currency to the domestic economy via this system making the forex rate coming down.

In early July 2018, Iran launched Forex Management Integrated System, locally known as NIMA, to allow the exporters of non-oil commodities to sell their foreign currency earnings to importers of consumer products.

The system, which seeks to boost transparency, create competitiveness among exchange shops and a secure environment for traders, was aimed to create the ground for importers to supply their required foreign currency without specific problems and for exporters to re-inject their earned foreign currency to domestic forex market.

And in late May, CBI unveiled a new directive package to provide the country’s exporters with guidelines about how they should re-inject their foreign currency incomes into the country’s economy.

Saying that forex market is stabilized, the CBI governor said last week that the process of re-injecting foreign currency earned from exports into the country’s economy cycle has been improved which indicates that those involved in the economic activities are welcoming the recent forex policies of CBI.

As reported, the CBI’s new policies in NIMA has also led to a NIMA rate closer to the free-market rate, resulting in a stronger rial against dollar.

In a report titled “Don’t Look Now Donald Trump, Iran’s Currency Is Soaring”, released on Thursday, Bloomberg has brought some of the reasons for the recent strengthening of rial under the spotlight.

The report said, “If there was a currency you wouldn’t expect to be strengthening, it would be Iran’s.

But the truth is that the rial is soaring on the country’s parallel market, gaining eight percent against the dollar this week alone to extend its advance since early May to 30 percent. That’s according to Bonbast.com, a local website that monitors the currency.

The rial’s resilience is evidence that Iran, which implements a range of import restrictions to preserve foreign exchange, has “hunkered down,” according to Steve H. Hanke, a professor of applied economics at Johns Hopkins University in Baltimore.”

The report elsewhere said, “There have also been changes to the currency system. The Central Bank of Iran maintains an official exchange rate of 42,000 rials per dollar. But it’s recently tried to get more exporters to use a trading platform known as NIMA, which was set up last year. The rate on NIMA has been allowed to weaken in recent months to encourage more companies to sell their foreign exchange.

That’s eased pressure on the rial on the unregulated parallel market, which is used by small businesses and individuals. There, the currency now trades at 120,000 per dollar and has almost converged with the NIMA rate of around 115,0000.”

While the CBI’s actions have been the main driver of controlling forex market and calming down this market, the experts also mention some other measures taken by the government to this end.

Hadi Haqshenas, another economist, named three factors as the main reasons for dropping forex rate.

The first factor is “an agreed NIMA rate”. The government let the exporters and importers to reach agreement on a single rate and in this way there will be no ordered rate for the exports.

The second factor is “positive trade balance”, as the country could realize a $1.3-billion positive non-oil trade balance during spring, which corresponds to the first quarter of Iranian calendar year.

And the third factor mentioned by Haqshenas is “bartering agreement with neighboring countries.”

All these approaches have led to a stabilized forex market which is moving toward lower rates. Something which seems to continue specially if the country’s foreign policy brings fruitful results.

As defined by the Investopedia, capital gains tax is a levy assessed on the positive difference between the sale price of the asset and its original purchase price. Long-term capital gains tax is a levy on the profits from the sale of assets held for more than a year. Short-term capital gains tax applies to assets held for a year or less, and is taxed as ordinary income.

While CGT prevents from the wealth to be owned just by a few people, it leads the liquidity toward production, and help re-distribution of wealth and income in the society.

CGT has come under the spotlight in Iran during the current Iranian calendar year (began on March 21), as the country is investigating different ways for a budget plan with no reliance on the oil income, and collecting taxes is one of the major ones.

The proposed 17.03 quadrillion rials ($405 billion) budget bill for this Iranian year has envisaged 1.53 quadrillion rials (about $36.5 billion) of tax income.

Earlier this month, Iranian Minister of Finance and Economic Affairs Farhad Dejpasand said that reducing the current year’s budget dependency on oil exports is the most important economic objective in the country.

Last week, the minister also stressed that an efficient tax system should be a priority in the government’s policy making, and put emphasis on the necessity of imposing capital gains tax.

 New tax strategies required

Mohammadreza Pour-Ebrahimi, the chairman of the economic committee of Iranian parliament (Majlis), said on June 8 that new tax strategies should be taken and new taxes should be imposed in order to reduce the gap that is becoming larger and larger between the poor and the rich due to the effects of the fluctuations in the foreign currency exchange rate.

In this due Majlis has put approving the capital gains tax plan on agenda, he added and said that this plan is in the final stage to be approved for housing market and the government is preparing it for some other markets as well.

A non-oil budget requires other stable income sources, and the government is considering tax on non-productive assets as one of the major sources in this regard, Pour-Ebrahimi said.

Not only is capital gains tax an effective instrument for establishment of fairness and economic quality, it can also help the government reduce reliance on oil revenues.

CGT should avoid liquidity outflow from one market to other ones

While imposition of CGT is considered necessary, it also should be taken into account that such tax may lead the liquidity flow from a specific market (such as housing market) to the other ones (like foreign currency market or gold coin market).

Such condition can cause damage to the market entitled to the CGT in a way that, for example in housing market, it can reduce investment making in construction of new houses.

At the same time, outflow of the liquidity to the parallel markets can increase fluctuations in those markets.

And as incomplete implementation of a law, once all aspects of it are not considered, can bring results worse that those when there is no such law at all; to impose CGT it should be done simultaneously in the parallel financial and asset markets.