Hamidreza Etedalmehr, Chair of the Board of the Internet Businesses Employers’ Trade Association: So much has been said about the value, standing and opportunity-creating potential of knowledge-based companies that one could say we have become all too familiar with the subject! This awareness has become a source of discouragement and humiliation for this country’s young people when it comes to comparing domestic companies with successful international startups; young companies just a few years old in neighbouring countries experiencing remarkable growth; slogan-like figures about talented people returning to the country set against the first-hand experience of a flood of would-be emigrants; unresolved sanctions-related problems in communicating and exchanging technology with the world beyond our borders; and, worst of all, the authorities’ strange, unusual and rarely encountered preoccupations in governing the country. But who really benefits from this (chaos)?
The double-edged sword of legal supportIn this piece, I have tried to examine working in the internet business sector from various angles, drawing on my own 20 years of experience. This article specifically examines taxation of creativity-based businesses.
The bill and, ultimately, the Law on ‘Support for Knowledge-Based Companies and Institutions and the Commercialisation of Innovations and Inventions’, No. 57953/258 dated 30 Aban 1389, was in fact the first formal, legal step towards facilitating and supporting the growth of creative businesses, creating useful legal scope for a bright future. But the bitter reality is that even this law, in a careless attempt to guard against profiteers, built a defence system into itself that can be seen as a cause of today’s difficulties.
Article ‘11’ of this law states: ‘All persons (natural or legal) who have benefited from the support provided under this law and who use the support and facilities granted under it for other purposes shall, in addition to being barred from receiving support under this law again, be subject to the following penalties.
a) Those who have benefited from financial facilities shall, in addition to returning the funds, be fined an amount equal to the facilities received.
b) Those who have benefited from preferential conditions for entering tenders shall be barred from participating in all tenders for three years.
c) Those who have benefited from tax or levy exemptions shall, in addition to paying those amounts, be fined an amount equal to the exemption granted.’
From the tax perspective adopted in this commentary, a little reflection shows that the exemptions granted have, in fact, left the way open to arbitrary treatment in the future. In other words, if taxpayers cannot prove, under today’s criteria, that the exemptions they received were spent on knowledge-based research and production, they will be subject to the penalties set out in this law (sometimes they will be required to account for this five years after the relief was granted).
Word has it that punitive action against some companies in this regard is imminent. Sometimes the auditing of those who abuse the system receives so much attention that it turns the very issue of (support) into a troublesome process. Creative and knowledge-based companies generally have agile structures free of the usual red tape. Yet to obtain facilities and support, or to submit the reports and documentation needed to renew their knowledge-based status, they must devote substantial time and human resources, diverting them from their core plans.
Many of today’s irresponsible practices, ostensibly introduced to identify and verify knowledge-based and creative companies, contradict the very nature of the proposal, the bill and, ultimately, the enacted law. For example, these companies’ 15-year tax exemption has become a time-consuming annual process in which taxpayers will lose their exemption (for part or all of their sales) if they cannot provide sufficient documentation.
Relocating to technology parks to obtain more support is another route that may have had positive results in some cases, with the presence of a number of successful companies creating survivorship bias in reports and assessments of these parks’ success. The reality is that, in most cases, moving to technology parks came at the price of imposing opportunity costs or serious harm on businesses themselves, which was never acceptable.
In the view of many businesspeople, one of the most important factors disrupting the success of startups and knowledge-based companies is the examination of their financial records by non-specialists. How can people who know nothing even about these companies’ financial processes and workflows conduct a fair and equitable review? Many unsound judgements in the review of tax returns have undoubtedly discouraged the country’s talented people and caused them to give up.
Financial flows in internet businesses and startups, particularly in their first five years, differ fundamentally from those of other businesses. Expense and product classifications in the production process, and human resource costs, are influenced by investors’ systems and requirements, and failing to follow this approach will permanently deprive a startup of the ability to attract investment. Today, we cannot ask new employers to run their startups like traditional businesses to protect themselves from legal penalties simply because of the country’s bloated and rigid tax system.
The word chaos is very ugly and negative, and it certainly cries out despair from within; the reality facing businesses today is the result of at least 16 years of mismanagement under the previous four governments, now manifesting itself in the consequences of various forms of inefficiency. If there is a will to combat this chaos, it must undoubtedly put the following measures to work simultaneously:
a) Speed of action;
b) Listening effectively to everyone who has, in some way, suffered harm or gone bankrupt;
c) The power to make decisions and immediately overhaul some old processes (changing laws in the traditional way sometimes takes up to 10 years);
d) Accepting the fact that, in the current process, upright people committed to service are paying the price in place of profiteers.
Finally, I would point out that my lived experience suggests much of today’s mismanagement has been exacerbated by the failure to bring civil liability claims against government employees. Until employees or government agencies face proceedings for their mistakes, it will not be possible to overhaul and improve conditions.
As things stand, people working in each agency are transferred after several years of service, regardless of the impact they have had, as though they had never existed! This unwritten government culture will, of its own accord, drive out talented and responsible people.
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