The possibility of deducting the total premium paid from the income subject to payroll tax

The possibility of deducting the total premium paid from the income subject to payroll tax

Hamid Khadim, Certified Accountant
Duniya Ekhtaz Newspaper 20/06/2018

According to paragraph 2 of the circular dated 7th of February 2003 of the Tax Affairs Organization, “employers of the insured persons of the Social Security Organization can only deduct two-sevenths of the insurance premiums paid by the insured employees, and employers of the insured persons of the Medical Services Organization and other Iranian insurance institutions can also deduct the entire share The insurance premium paid by the insured salary earners should be calculated from their salary income and by specifying the amount in the salary lists, submitting to the relevant tax affairs department, the due tax will be calculated.

This is while it is stated in the text of Article 137 of the Civil Code: “In addition, the insurance premium paid by any natural person to Iranian insurance institutions for all types of life insurance and health insurance is deducted from the taxable income.” Also, the explicit text of the aforementioned article does not refer to a specific ceiling or amount of insurance premium. Therefore, in the meantime, since 2003, the Tax Affairs Organization has only authorized the deduction of two-sevenths of the paid insurance premiums of the salary earners’ share from the taxable income, according to the circular issued, and the Director General of the Legal Office of the Tax Affairs Organization of the country has cited the bill dated 17 October 2017 in confirming this issue. According to the letter dated March 3, 2002, which was issued by the General Department of Technical Affairs of the Social Security Organization, and according to it, from April 1, 2015, after 70% of the employee’s insurance premium, 2 units will be allocated for medical purposes and 5 units will be allocated to other cases.

Considering that in Article 137 of the Direct Taxes Law, the insurance premium paid by each person for health insurance is deducted from the taxpayer’s taxable income, and considering that only 2 units out of 7 units of the insurance premium paid by the insured are allocated for medical purposes, therefore in the circular As mentioned above, the amount of 2 units will be deducted from the taxable income. Now, the question is, if this logic was correct, why was this ratio not applied to accept the cost of the employer’s share insurance, and the entire employer’s share insurance premium was accepted as an acceptable cost!? With regard to the claim of the Tax Affairs Organization and the explicit text of Article 137 of the Civil Code, finally, according to the decision of the General Board of the Court of Administrative Justice, the subject of petition 591 dated July 11, 2018, the part “only by deducting two-sevenths of the insurance premium paid by the insured salary earners” From the paragraph 2 of the circular dated 7th of Bahman 1383, the tax affairs organization is considered to be contrary to the ruling stipulated in article 137 of the direct taxes law and article 29 of the social security law, and based on paragraph 1 of article 12 and article 88 of the law on organization and procedure of the administrative justice court approved in 1392 has canceled it.

Therefore, from the date of the decision of the Administrative Court of Justice, the total insurance premium paid by the salary earners must be deducted from the income subject to salary tax. This matter was also announced in the circular dated 14 August 1398 of the Tax Affairs Organization.