Persian Empire 1845

Chapter 468 Fiscal Reform
How much funding do you need for this plan?

Musharraf produced a long bill. "Please take a look, Shah."

His plan includes building roads and upgrading the city, as well as completing various public facilities. In addition, there will be 600 schools and libraries, and 50 hospitals. A large number of doctors will need to be recruited, and medical and teacher training colleges will also need to be expanded. Including industrial needs, the total cost will be 1.8 million riyals.

"Isn't this plan a bit too hasty?"

"Please rest assured, Shah, the transportation aspect is based on a five-year period. Other aspects are based on a seven-year period. In addition, the education and transportation departments will also be involved, so there will be no problems."

The previous investment of 100 million riyals has been used for factories and railways. The efficiency of the internal combustion engine is also improving, and it should be ready for implementation soon.

However, it would be unreasonable to make the royal family bear this cost. The government will be responsible for 8000 million rials, and the royal family's funds will be raised in the form of bonds.

"By the way, I heard you're going to adjust the country's tax rates?"

Musharraf nodded. Iran's current fiscal revenue reaches 105.28 million rials, more than half of which comes from oil companies. The remainder comes from customs duties, individual taxes, and monopoly revenues.

National revenue has increased significantly, but so has expenditure. This is particularly true for education and healthcare, which were previously handled by religious organizations; now that the government is in charge, it's natural for them to maintain these services.

In addition, there is an annual expenditure on tree planting, and Shah visits several tree-planting sites throughout the year to check on the saplings and the progress of greening. Combined with funding for land policies, these expenditures quickly catch up with revenue, and there is a risk of increasing the deficit.

In order to increase revenue and reduce dependence on oil, Musharraf decided to undertake a major overhaul of the finances.

Musharraf drew on fiscal reforms from Britain, France, and Prussia, and adapted them to local conditions. A draft has been completed; it awaits nationwide rollout after pilot programs.

Land has always been a major source of tax revenue. In agricultural countries, farmers pay over 80% of the taxes. In Iran, land tax accounted for 75% before 1848, later gradually decreasing to 28%. If oil revenue is excluded, it accounts for 53%.

Following the land reform of 1850, a flat land tax rate of 15% was imposed regardless of land quality. While this increased income, it also increased the burden on farmers cultivating poor-quality land.

To this end, Musharraf decided to classify arable land into six grades based on soil fertility and levy differentiated taxes accordingly. He also conducted a nationwide land census while the land redemption policy was underway to prevent tax evasion and concealment. This included nobles, who, although also required to pay taxes, were abusing their privileges to conceal their tax payments, and this needed to be addressed.

In addition, Musharraf decided to introduce a progressive tax system, levying taxes ranging from 2% to 10% on an annual income of 500 rials. It is estimated that these two policies could increase revenue by at least 200 million rials.

In addition to land censuses, population censuses targeting tribes are also necessary. Iran's mountainous terrain allows tribes and individuals to hide, resulting in lost labor for industry and tax revenue. A strong agency is needed to conduct population calculations, especially in mountainous areas, which may require weaponry to prevent resistance.

Musharraf paused here, glancing at the Shah's reaction. The Shah didn't react, which reassured him; according to his predecessor, this was the situation that allowed him to finish speaking.

“Shah, what I’m about to say is one of the key points of this plan.”

Shah was curious; what was the key point? Musharraf replied with four words: Postal Savings. Postal Savings originated in 1861 when Finance Minister Willem-Urter Gladstone, aiming to curb usury, established the Postal Savings System, modeled after the Belgian National Savings Bank. The system allowed accounts to be opened for 1 shilling, with funds deposited into the Ministry of Finance at an annual interest rate of 2.25%. Furthermore, services were available at 500 post offices nationwide, allowing depositors to use their passbooks to make deposits and withdrawals at any branch.

In its first year, it opened 25 accounts and attracted £170 million in deposits. While other banks offered similar services, they primarily catered to merchants, not workers and farmers.

"That's quite novel, but can it be implemented in our country?"

“This can’t be done immediately, but we can start a pilot program in Mazanderan to see how it goes.”

Iran's postal system developed alongside its railways, resulting in an imbalance between the east and west. Therefore, Musharraf needed substantial funds to invest in the east to drive development, and small-scale social savings were one such method he employed.

Furthermore, these funds could become a driving force for the local economy. The absorbed funds must be invested in local industry and other sectors. Moreover, for this policy to be implemented, it required the support of royalty and religion. Simultaneously, the passbooks would be stamped with the lion's sun emblem, and those who misappropriated the funds would be punished according to Islamic law by having their hands cut off.

“Yes,” Nasserdin nodded. This plan could attract small amounts of funding from society, which would also be a boost to the economy.

The final focus of the plan is on the colonies. Iran possesses numerous colonies and, while generating revenue, it primarily comes from trade and tariffs. Their potential extends beyond this and requires transformation.

The colonies produced the most valuable commodities: gold, ivory, and spices. These were all operated by companies, with the government holding 20% ​​to 35% of the shares. However, gold was the foundation of the gold standard, and Musharraf envisioned nationalizing Lanfang's gold company, making it 100% government-owned. He also planned to acquire shares in Qinistan's mines and railways to varying degrees. In East Africa, he experimented with taxing aristocratic lands and taxes levied on black people.

"Stop!" Naserdin shouted. These measures had exceeded his expectations. If they were done, those nobles would soon come to settle scores, and the losses would not be minor, but life-threatening.

“Shah…”

"You can pilot your savings and progressive tax system first, but we need to discuss the rest further. After all, this is just an initial plan."

"You are right, I was indeed a bit too eager for quick success."

Musharraf quickly cooled his feverish thoughts; these plans certainly couldn't be implemented within five years. Besides, he didn't know how long he could hold the Grand Vizier position. Don't be fooled by Amir's 17 years in office; his connections were there. The Shah trusted him unconditionally—what could he do?

Moreover, he himself encountered obstacles within the government, with some cabinet officials arguing over financial issues. Coupled with the recent election of the expert panel, maintaining stability within the government has already been difficult.

"I hope you can rewrite the proposal for me. It will probably be discussed in a meeting soon."

"Yes"

(End of this chapter)