Elham Esmaeili
Economist Saeed Leilaz speaks to Rooz in an interview about the new value-added tax legislation and its repercussions, including bazaar's closure in Isfahan, Tabriz, Shiraz and Tehran. Leilaz argues that the government is bound to increase tax revenues to offset decreasing oil revenues, which is impossible and problematic to do in light of the policies administered in the past three years. For this reason Leilaz believes that "the government's retreat against the bazaar would last only until the election is over." The text of the interview is below.
Rooz (R): Why was the value-added tax not implemented by previous administration - despite discussions that took place?
Saeed Leilaz (SL): Because in previous administrations the government's tax revenues never reached the present low levels. Given the huge decrease in oil prices worldwide, the government must now necessarily rely on tax revenues and if this feat is not achieved we would face humongous budget deficits and the wave of inflation that such a budget would impose on the country is beyond society's level of tolerance. Therefore I argue that the government's dependence on tax revenues has increased, while at the same time the government's expenditures have heavily increased. Currently, tax revenues account for only 20 percent of government expenditures, which is a very low proportion.
R: In economic terms, do we have the necessary foundations to implement this legislation?
SL: In my opinion, the economic structure is still not ready for the implementation of this law, both in terms of connectivity and information as well as mentally and culturally; meaning that after we have the Iranian people in the past 3-4 years to develop the habit of not paying taxes, it is very difficult now to impose a new tax on such a society. We had numerous instances in the past 3-4 years when Mr. Ahmadinejad would, for example, say, 'Imposing this law generates only 15 to 20 billion Tomans of revenue, let us forget about it. A government that sells several hundred billions of dollars worth of oil every day does not need such revenues.'"
R: How connected is the issue of imposing value-added tax to Iran's faltering foreign currency revenues due to decreasing oil prices?
SL: It is naturally directly connected and now that the price of oil has decreased, given the vast gulf that exists between the government's revenues and expenditure (which is more than 80 billion dollars this year), the government can no longer fill in the gap by relying on oil revenues. It is forced here to lower its expenditure, which is impossible because of the severe discontent it will produce; or alternatively, it can increase its tax revenues. Therefore, the government is in need of higher tax revenues in the near future and naturally our issues of problems remain unsolved and would be exacerbated in the future. If we want to cover the government's expenditure we must sell our oil for an average of 85 to 90 dollars per barrel, whereas the price of each barrel of oil currently exported by Iran is below 70 dollars. This means that every single day we amass about 35 to 50 million dollars of budget deficit. This is a high number that, if sustained, will lead to strange and surprising social and political earthquakes. However, ahead of the upcoming presidential election, the administration prefers not to impose this pressure on the public and would rather postpone the imposition of the value-added tax.
R: Has this two-month postponement not been a retreat on the government's part?
SL: That is indeed the case and unfortunately it was a strange retreat as well. For a government that says, "We will implement this plan even if it brings down the administration" it is very surprising to have such a retreat. It is unprecedented in Iran's history for a government to go back on its word in such a way within a few hours.
R: So in your opinion the government's retreat can last until the end of the election at most?
SL: That is certainly the case, because I don't regard Mr. Ahmadinejad's administration as one that is able to cut government expenditure. Actually I have to point out that this is very dangerous. The government's operating budget has increased by 12 percent; which means that Mr. Ahmadinejad's administration is in no way able to impose financial discipline in its operating budget and this is very complicated and dangerous.
R: The Islamic Coalition Society and Islamic Association of Bazaar, which are close to the clergy, stood opposed to the administration on this issue. In your opinion, can this conflict be interpreted as one between commercial bourgeoisie and semi-bourgeoisie with capitalists connected to the military establishment?
SL: The bazaar has always occupied an important position in Iran's political history and has played a crucial role in various junctures. This situation has continued after the revolution as well. However, its role continues to become less important. Therefore, it is very natural at this moment for the bazaar and the clergy, who have always been aligned with and supportive of one another, to feel danger and react to the prospect of losing power.
