Sunday, October 19, 2008

Bazar Said "No" to Value Added Tax

Iranian government has introduced a value added tax (VAT) and gave the treasure authorization to collect this new item from businesses and Bazar across the country. The treasury issued an order and set a date to start the collection. Things seemed to be under way however...... .

However President Ahmadinejad's administration underestimated Iranian Bazar greatly. First in Isfahan, then in Mashhad, then in Tabriz and finally in Tehran Bazar closed down and Bazaris went on strike opposing the new tax measure.

Government retreated first by canceling the order temporarily for two months and then for time being. Tehran's Bazar stayed on strike demanding the new measure to be canceled permanently. For a government that talks of bold measures it was not exactly a triumph.

While many debate that VAT is a measure to protect consumers from over taxation and some argue that little time had been spent on preparing the public for this measure, it seems that many miss the point communicated regarding the policy implementations in Iran: You do not mess with Bazar!

An increase in taxes is not something Iranian shopkeepers and Bazar's tradesmen submit to willingly. There was little doubt that they would react to such measure. and It must be noted that they can.

It does not need reminding that Bazar or marketplace is Iran's most ancient economic institution. So its network of connections includes the elite, the clergy, the industrial entrepreneur and the consumer. It is well aware of its connections and its power. It also benefits from the fact that everybody else is convinced that its motivations are purely economical. So Iran's Bazar benefits from that rare luxury that many other institutions lack: maneuverability.

Its reaction to this new measure only confirms this reality. Reacting to a measure that was well intended it communicates a clear message to the administration, in Iran to protect the consumer Bazar is not willing to take on more taxation.

Many might welcome more government's subsidies, the traditional way of disturbing the wealth of oil in the society, but the declining oil prices are not empowering more subsidization either. Government has only two choice ahead: either to sacrifice development for the sake of consumer by diverting its resources or its popularity with Bazar for the sake of its popularity with consumers. Neither is an attractive prospect.


Mouris said...

This is not the matter of %3 increase in taxes for Iranian shopkeepers.
For them VAT means the clarification of total yearly sales which was not clear before.

So please do not make this mistake.

Ali said...

Hi Mouris,
I agree and I support VAT for the very reason. I do not understand what mistake I have committed? Still Bazar was able to push its agenda and aviod paying. Yesterday government asked for a postponement from Parliament. My point was not approving Bazar, but describing its strength.
Thank you for your comment