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Since his troubled reelection in 2009, reforming the economy has been the key objective of the President Ahmadinejad government. In spite of widespread objections, for example, Ahmadinejad took the bold step and imposed the lifting of the subsidies in an attempt to simultaneously rationalise the economy and disenfranchise his middle-class critics by promising more targeted subsidies for the lower classes that support his government.
In a way, the international community ought to be thanked for imposing sanctions on Iran since sanctions seem to have generated "a new pragmatism on economic liberalization" by galvanizing support for previously 'unattainable economic reforms'. Given the imposition of a series of new sanctions since 2010, therefore, Ahmadinejad has now turned his attention to Iran's taxation system. Speaking at a conference on tax reforms on December 3, he claimed that paying tax is not "forced payment"; instead, it is the most important form of "participation in politics".
Traditionally, revenues generated from oil export had made the government reluctant to collect taxes, let alone reforming the system. However, as more oil companies depart from Iran and more states refuse to buy the Iranian oil, Tehran is now in dire need of new sources of income, and that the government seems determined to implement painful tax reforms so to generate more cash for itself. This new enthusiasm could also be a tactical move by the Ahmadinejad government to reduce the financial might of the IRGC whose smuggling activities tend to deprive the state of $20 billion in tax revenues annually. Not long ago, in fact, Ahmadinejad, giving a speech on key obstacles to tax reform in Iran, put the blame squarely on the Guards referring to them as "our smuggler brothers".
Regardless of the government's intentions and whys of this relatively new initiative, overhauling the taxation system will not be a straightforward process though it has been overdue for a long time. Not only 41% of Iranians are exempted from taxation by law, but a good number of regime officials, not only the IRGC, have a vested interest in keeping the current system unchanged so to be able to continue with their illegal economic activities. As recent anti-tax protests in Tehran's textile and gold markets illustrate, moreover, government still has a long way to go in order to persuade business owners to actually pay into the public purse. What is more, Ahmadinejad and his team must find a way to assure the public that their tax money will be spent on programmes that directly improve their day-to-day living standards. In the face of the recent financial scandal as well as the widely held view on government's corrupt tendencies, however, government chances of persuading the public are slim at best.
More importantly though, there is a cultural factor at play here to the extent that it is no exaggeration to say that tax evasion in Iran, similar to Greece, is a national sport. The only difference with Greece, however, is that the vast majority of Iranians are encouraged by the clergy class to avoid paying taxes because such undertaking is said to be haraam. Unlike their Sunni counterparts, Shia marjas receive their incomes directly from the public which are paid to them, or their representatives, in the form of khoms (poor tax). This in turn explains why Shia Islam and Shia clerics have been more political compared to Sunnis. Sunni clerics are dependent on the state for their survival. Shia marjas, in contrast, have the economic means to act independently from the state and could undermine the state by using their money to set up welfare states in their respective regions/districts.
As a matter of fact, Ayatollah Khomeini and his fellow mullahs' incredible success in securing the public and the bazaar support for their revolution had a lot to do with their economic independency from the Shah. They had the financial means to mobilize the public and compensate those who gave up their jobs in order to stage protests on streets and spread the Khomeini's cause. At the same time, preferring the rather informal khoms system to a state-regulated tax system in which they had to register their national incomes, many Iranian merchants may have lent their backing to Khomeini and the revolution out of financial calculations – paying less tax and retaining a larger portion of their annual incomes – rather than pure ideological affinity.
As Ahmadinejad's team moves forward with its tax reform agenda, thus, it is creating a puzzling dilemma for the clergy class, which, arguably, constitutes the biggest obstacle to implantation of proposed reforms. Aware of the state's urgent need for a new source of income, many clerics realize the need to encourage their followers to pay tax. Yet, doing so would mean a drastic reduction in Ayatollahs own source of income as it would be difficult to ask the public to pay both state taxes and khoms, especially in this period of economic hardship. Opting for the latter requires the clergy class to prioritize regime interest over its own. The trouble here is that they do not know the real intention of the President: is he acting in the regime interest by trying to put in place a new taxation system or is he simply trying to weaken the clergy class by depriving them of their source of income and thus their independency from the state.
