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Iran stops taxing foreign currency imports amid liquidity crunch

The Central Bank of Iran has a shortage of foreign currency and the United States is seeking to stop the flow of dollars into the country.

The Iranian government announced Friday that it is removing taxes on the importation of foreign currency. 

Head of the National Tax Administration Davood Manzoor told customs offices to exempt foreign cash and money order imports from taxation. Any person or entity can now bring in foreign money without paying taxes on it until Nov. 21, the official Islamic Republic News Agency reported. 

Why it matters: The National Tax Administration did not say why it decided to exempt foreign currency imports from taxation, but Iran has experienced foreign currency shortages recently. 

Iran started printing more of its own currency — the rial — in 2018 to mitigate the effects of US sanctions reimposed after the Trump administration withdrew the United States from the Iran nuclear deal. The government also injects US dollars into the market to slow the depreciation of the rial. Printing the rial accelerated in 2022 as the government borrowed from the Central Bank of Iran to bridge its budget deficit. However, the bank does not have significant foreign currency reserves to back the rials it prints, the pro-opposition news outlet Iran International reported last December. 

The Abu Dhabi-based news outlet The National also reported last month that Iran is suffering from a shortage in foreign currency reserves and is looking to cryptocurrency as a result. 

The rial plummeted considerably late last year. 

The move comes as the United States seeks to stem the illegal flow of dollars from Iraq to Iran. Last November, the US Federal Reserve began imposing greater oversight over dollar transfers from Iraq’s reserves in the United States back to Iraq. One reason was to stem the illegal transfer of US dollars from Iraq into sanctioned Iran. 

Know more: The Islamic Republic is seeking to rely less on the dollar and circumvent US sanctions on its economy. Last month, Iran and Russia signed a financial messaging agreement. Both countries are suspended from the SWIFT financial messaging network that predominates global finance. Iran and Russia also started using their own currencies for trade last year. 

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