President Ahmadinejad Suspends VAT Introduction For Two Months
Following a week-long strike in protest against the introduction of a new 3% value added tax (VAT) in Iran, which led to the closure of bazaars in Tehran, Isfahan, Mashhad and Tabriz, Iranian President Mahmoud Ahmadinejad on 9 October issued an executive order to suspend the tax for a period of two months. In a letter addressed to the Minister of Economy and Financial Affairs Shamsadin Hosseini, Mr Ahmadinejad said “in a bid to implement the tax law correctly and remove the obstacles and problems facing its execution, the plan will be on hold for two months,” and instructed Mr Hosseini to consult with representatives of various guilds and report to the president. But this suspension did not immediately defuse the situation among the politically powerful bazaaris and the strike did not come to an end until Monday 12 October. Some merchants at the bazaars have called for the total scrapping of VAT, which officially came into effect on 22 September, because it would raise prices and add to the high rate of inflation which rose to 29.4% in the year to 21 September (MEES, 13 October). Analysts pointed out that the strike at the bazaars was the first to be called in protest against a government law since the Islamic revolution of 1979. It also underlines a strong sense of general dissatisfaction among Iranians with the government’s economic policies and its failure to control inflation. The bazaaris in Iran play an important political and economic role in the country, and in 1979 they contributed to the collapse of the regime of the former Shah of Iran when they went on long strikes.
The introduction of VAT in Iran is part of a comprehensive plan to reform the country’s tax system in a bid to increase government revenue. An economic advisor to Mr Ahmadinejad, Morteza Tamaddon, said that the current problems with the implementation of VAT are related to the failure of putting in place the required infrastructure and the provision of enough information to the public. In a cash economy like Iran, merchants in the bazaars prefer to use cash in their transactions with relatively simple documentation. So a shift to a more sophisticated system of accounting involving proper invoicing and computers will need extensive preparation. A number of businessmen have asked for more time before VAT can be implemented. “We believe that VAT should be implemented, but there must be enough time to brief those who will be dealing with it. We demand a year or at least six months of suspension,” the head of the Tehran Business and Production Assembly Mohammad Pour-Mazraeh is reported to have said. Officials have also stressed that the introduction of VAT was not linked to rising prices of goods and services in Iran.
Ahmadinejad Pushes Reform Package
Meanwhile Mr Ahmadinejad is still pressing on to implement his economic reform package despite the fact that it had not yet been debated in parliament. The package will among other measures introduce the payment of a monthly subsidy ranging between IR500,000-700,000 ($51-71) for each citizen to compensate for the withdrawal of existing subsidies in the annual budget, the president revealed in a TV address. But a number of deputies from the Iranian parliament have criticized the president for revealing details of his plan before it gets the final green light from parliament. “What the president announced is a plan that has not yet been submitted to parliament for approval,” the spokesman for the Majlis Economic Commission Mohammad Reza Khabbaz has said. At a time of hard economic conditions in the country and soaring inflation, the president wants to appear to be taking drastic measures to help the poorer sections of society, especially if he has plans to run for a second term in next June’s presidential elections. But in the meantime a number of economists have warned that the injection of cash into the real economy could push inflation even higher.
Copyright MEES 2008.
