Iran Halts New Sales Tax After Merchants Strike

By Thomas Erdbrink
Washington Post Foreign Service
Thursday, October 9, 2008

TEHRAN, Oct. 8 -- A series of private-sector strikes has forced the Iranian government to suspend the implementation of a new sales tax borne most heavily by the politically powerful merchant class, marking a setback for President Mahmoud Ahmadinejad's plans for economic change.

In a rare show of public protest, angry shopkeepers refused Wednesday for the second straight day to open stores in the central bazaar in the city of Esfahan. Many shopkeepers in Tehran, Mashad and Tabriz also refused to sell goods in protest of a tax measure that took effect in the final week of September.

Under the new sales tax law, merchants must pay the Iranian government 3 percent of their sales receipts. Some analysts here predict that the tax will be passed on to shoppers in the form of higher prices, meaning that business in some cases may suffer.

The measure is one element of Ahmadinejad's plan to revise the country's antiquated tax code and banking systems. Other measures call for ending government subsidies on such basic products as gasoline, flour and electricity. The president's goal is to cut government spending and lower inflation, which rose in September to 29.4 percent, according to Iran's Central Bank.

Implementing the sales tax was among the first steps of the revision plan, which, as initially conceived, would have affected only gold and jewelry sellers. Those merchants initiated the strikes by closing their stores, often located at the main entrances of bazaars.

The bazaars, traditionally the business centers of Iranian cities, are also hubs of political ferment. In the years preceding the 1979 revolution, bazaar merchants teamed with rebel Shiite clerics, mainly out of fear that government modernization plans were undermining their business monopolies. The shopkeepers played an important role in the eventual downfall of the Western-backed Shah Mohammad Reza Pahlavi, using private-sector strikes and their financial resources to support his opponents.

During an emergency meeting Wednesday with the merchant associations, representatives of Iran's tax authority agreed to postpone implementation of the sales tax for three to six months, said members of parliament and leaders of the associations.

"The situation in the Esfahan bazaar was very chaotic," Mohammad Aref, the head of the council of associations, told the Iranian Labor News Agency. "There were worries that the strike would turn political. The law has now been postponed."

During a state television interview Tuesday, Ahmadinejad said implementation of the sales tax was an essential part of his economic revision plan. There has been no reaction from the government on the delay.

In Esfahan, witnesses said merchants all over town rolled down shop windows in a show of protest reminiscent of the days of the Iranian revolution. "The front gate of the bazaar is locked, and the streets are deserted," one witness, who declined to be named, said in a telephone interview.

Many merchants in Tehran said they did not object to paying the sales tax but feared the implementation would be arbitrary.

"In Iran, if you have connections, you don't have to pay any taxes," said Mahmoud Askari, a carpet salesman in the Tehran bazaar. "But we don't have those connections. So we probably have to pay double."

He and his colleagues closed their shops to support the gold and jewelry sellers.

"I love the president," Askari said. "But he will not succeed in this plan."

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