Tax revolt in Iran stops Ahmadinejad scheme

Washington Post:

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.

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The program may be one of the few measures that Amadinejad has pushed that makes sense. He is trying to eliminate the gas subsidies and other non market activities that have thwared the Iranian economy. But the regime is so unpopular that eliminating the goodies exposes them to the anger of the people.