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October 10, 2008

Sales Tax Incites Rare Private Sector Strikes in Iran

Widespread strikes shut down stalls in the Tehran, Esfehan, Mashhad and Tabriz bazaars earlier this week in protest to the implementation of a 3% sales tax. The sales tax is an integral pillar of Ahmadinejad’s revision of Iran’s antiquated tax code and banking systems; hoping to cut government expenditure and lowering inflation.

Although the implemented 3% sales tax only applied to gold and jewellery shops in the bazaars,  other shopkeepers closed down their stalls in solidarity.  Bazaaris are worried that being forced to pass on the sales tax to consumers will hurt their businesses, in the context of a reported 29% inflation rate in September according to Iran’s Central Bank. Some retailers didn’t mind paying the sales tax, but worried that there would be an arbitrary implementation, ultimately benefiting only larger competitors with government connections. In the words of a carpet salesman quoted in a Washington Post article, “In Iran, if you have connections, you don’t have to pay any taxes…but we don’t have those connections. So we probably have to pay double.”

Fearing that the protests would turn political, President Ahmadinejad decided to postpone the implementation of the sales tax following an emergency meeting between tax authorities and merchant associations. Different reports quote a period of 2-6 months before the implementation of the sales tax, and claim that the tax will be implemented to large enterprises only, thus having less of an impact on small-businessmen.

The powerful bazaari merchant class played an incremental role in bringing about the Islamic Revolution, as it funded the paralyzing strikes in other sectors of the Iranian economy and allied with activist clerics. Bazaari-led protests are thus particularly worrisome for Tehran, due to the contemporary, and historically, powerful role of the merchants in Iranian politics.

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