Iran backs down on tax hike after merchant protest

[July 07, 2010]  TEHRAN, Iran (AP) -- Protests by merchants in Tehran's main bazaar forced authorities to back off of plans to increase taxes on their businesses, Iranian media reported Wednesday, in a sign of the government's difficulties in implementing economic reforms.

The Iranian government has been trying to find ways to boost revenue amid low oil prices and to improve the country's ailing economy. But it has had to be cautious in the face of widespread public discontent over inflation and other woes.

On Tuesday, merchants in Tehran's main bazaar gathered in protest over reports of a government plan to dramatically increase taxes on their businesses, newspapers reported. Some of them closed down their shops in protest and there were threats of a general strike in the bazaar.

After the protests, Finance Ministry officials and merchants met and reached a deal leaving their taxes at the 2008 rate, which ranges from 6 to 15 percent, state TV reported.

The government has talked of raising the taxes on businesses, saying they give to little to the national coffers, and there have been reports that it planned to increase the taxes to as high as 25 percent. Many shopowners complain their income has dropped amid the global economic crisis and they cannot afford more taxes.

The merchants -- known as bazaaris in Farsi -- are a powerful sector, and a series of merchant strikes helped lead to the 1979 Islamic revolution that toppled the pro-U.S. shah. Since then, the bazaaris have been seen as a religiously conservative bedrock of support for Iran's Islamic clerical leadership. In 2008, the government suspended a controversial sales tax, a day after a rare strike by merchants.

Iran has been hit hard by lower revenues from oil, which brings in some 80 percent of the state's income. Even before the drop in oil prices, the government of President Mahmoud Ahmadinejad talked of dramatically cutting subsidies on fuel, food and other items in a bid to cut the budget.

But so far, the government has stayed away from substantial changes in the subsidies system, apparently wary that it fuel greater price increases and stoke public anger. Authorities say they have succeeded in bringing inflation down to 10 percent, but some experts believe it is more than 20 percent on certain basic needs.

[Associated Press; By NASSER KARIMI]

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.