But the government said that several weeks ago and the report proved false.
Ali Askari, head of the national Tax Revenue Organization, who has been the point man in trying to get the fabric merchants to adhere to the tax, told state radio last Thursday, “According to the recent agreement, after consultations with the textile sellers, they have agreed to implement the law and some of them have already registered [tax payments].”
The problem is that Askari said almost the same thing in mid-September.
The fabric merchants began striking in July.
The VAT (Value-Added Tax) law was passed by the Majlis in May 2005 under President Khatami and has been a point of friction with bazaaris throughout the country ever since.
How many businesses are paying the VAT and how many are still boycotting it remains unknown. The government has not shown any interest in providing that information, which suggests that many businesses are still ignoring the law, whose implementation was postponed frequently over merchant objections.
Back in 2005, Gholam-Reza Heidari Kord Zanganeh, then the head of the Tax Revenue Organization, said the new VAT tax would be in place by Now Ruz 2006 and would raise 20 trillion rials ($2.25 billion) in its first year.
The Majlis did not eliminate any other taxes when it voted in the VAT tax. So, if Zanganeh’s estimate was correct, the VAT tax would have added about 5 percent to the government’s revenues.
The VAT tax received very little discussion in Iran outside economic circles. Its passage was treated as a brief news item by most of the media, even though it is a very fundamental change in the taxation system.
The VAT is very much a European concept. A VAT tax of at least 15 percent is required of all members of the European Union, and some EC countries impose a VAT of up to 25 percent. But the United States and Canada have no VAT tax at all.
The VAT is a form of sales tax. Economists call it a consumption tax to distinguish it from an income tax. One of the arguments for VAT is that it does not tax savings the way an income tax does.
The European VAT tax is imposed at each stage of production. A manufacturer who buys raw materials for $10 and sells the resultant parts to an assembler for $14, would pay the tax on the $4 of value he added. If the assembler who puts all the parts together sells the end product wholesale for $17, then he pays the VAT on the $3 of value he added. And if the retailer sells the final product for $19, then he pays the VAT on that last $2 of added value.
A key point in the European system is that the tax is built into the price. The buyer never sees how much of the price is the tax. In the United States, there is much objection to this lack of transparency and hence much opposition to the VAT. Many liberals see it as unfair to hide the amount of tax while many conservatives object that obscurity has made it too easy for European politicians to keep jacking up the rate.
Zanganeh argued that a key advantage of the VAT for Iran was that it would prevent black market evasion of the tax. He did not explain how he could assure the public of that.
He also said that necessities were exempted from the tax. The chief exemptions he listed were foods and cooking oil.
The main criticism of the tax from Iranian economists appears to be that the regime has not made adequate preparations for collecting the tax fairly and completely.