Iran suspends tax after strike

Government had set sales levy to shore up budget

Iranians walked past closed jewelry shops in Tehran's Bazaar on Wednesday. Shopkeepers in Isfahan, Mashhad, Tabriz and Tehran staged strikes to protest a new sales tax. (BEHROUZ MEHRI/AFP/Getty Images)

TEHRAN - President Mahmoud Ahmadinejad yesterday ordered his government to suspend a controversial new sales tax, a day after a rare strike by merchants worried about how the new measure would affect their business.

The 3 percent value-added tax imposed in September sparked fears of price increases and added to the list of unpopular economic steps like rationing of subsidized gasoline that Ahmadinejad has taken to shore up the government's budget.

The Iranian government relies on oil revenue for 80 percent of its budget. But crude prices have fallen about 40 percent since record highs in July. Taxes make up the remaining 20 percent of the budget.

"When oil revenue drops, the government applies more tax, and this causes discontent among businesses that are already suffering from recession," said Iranian political analyst Saeed Laylaz.

Scores of merchants across Iran shut their stores Wednesday to protest the new sales tax.

The strike was led by the country's goldsmiths, which are among the few retailers in Iran that issue sales receipts that would make it easy for the government to track whether they are charging the 3 percent tax.

The strike prompted Ahmadinejad to send a letter to Iranian Finance Minister Shamseddin Hosseini ordering a two-month suspension of the sales tax to prepare for its implementation, the country's official news agency IRNA reported yesterday.

Before news of the suspension surfaced, the head of the goldsmiths union, Afshin Goharbin, said his colleagues would return to work yesterday since "the government promised to reconsider the law," the local Kargozaran newspaper reported.

"There is need for months of training to apply it [the tax]," Goharbin was quoted as saying yesterday.

On Wednesday, Hosseini said the new tax would not apply to retail shops or to the "vital needs of households," according to IRNA. Most of Iran's 3 million shops are retail in nature.

Not everyone was happy with the government's response to the goldsmiths' strike.

"It showed that government only cares about rich people," said shoe-polisher Reza Hamidi. "It is indifferent about poor people suffering from high prices."

Ahmadinejad's economic policies have caused increasing dissatisfaction over the past few months.

Inflation reached 29.4 percent in September, according to Iran's central bank.