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Domestic Economy

Overprotected Production

The Iranian parliament has approved a proposal themed “Support for Industrial and Production Enterprises” that “bans the confiscation of property and deprivation of banking and social services such as bank accounts, checkbooks and business cards”. 

The proposal is aimed at supporting production, manufacturers and industrial enterprises, as well as safeguarding employment under the pretext of Covid-19. 

Ali Heydari, an official with the Social Security Organization, looks askance at this latest initiative of the parliament in a write-up for Persian daily Ta’adol. What follows is a translation of the text: 

Many plans and bills have been approved in Iran in the name of safeguarding production; they have imposed a multitude of costs on the government and created several hidden, indirect and non-targeted subsidies which, in truth, are synonymous with granting undue privileges and creating non-competitive monopoly.

These plans also increase the Social Security Organization's expenditure and decrease its resources; they take away legal tools that the Labor Law offers to protect the fundamental rights of workers. None of these plans gives rise to a real boom in production; only a few employers use these laws to avoid paying premiums, taxes, government duties and tariffs. 

The interesting point is that many of these employers are not real producers; they are importers or sales representatives of foreign products, they just change the brand and packaging of imported goods and smuggle them under the name of national production. 

Another point is that all the plans approved at different junctures to support production have only taken one of the factors of production, namely “capital”, into consideration; they have been unaware of other factors, especially human resources. This is while “fair employment of factors of production” is a universally accepted principle. 

Based on this principle, Paragraph 5 of Resistance Economy [a set of principles outlined by the Leader Ayatollah Seyyed Ali Khamenei to help bolster domestic production, curb dependence on oil exports, improve productivity and encourage Iranians to buy domestically-made products] stresses “the fair share of factors involved in the chain of production to consumption commensurate with their role in creating value, particularly by increasing the share of human capital”. Paragraph 4 of the Resistance Economy also emphasizes the promotion of social justice indexes through targeted subsidies.

Over the past years, we’ve witnessed the emergence of a so-called “overprotected production” that enjoys the cheap supply of water, electricity, natural gas and other energy carriers, exemption from tax and insurance premiums or the right to enjoy premium discounts, unreal tariffs and cheap banking facilities without the need for timely repayments. Such a form of production is mainly based on the import and smuggling of finished products in large consignments that are repackaged into smaller sets in the so-called manufacturing plants. 

All the country’s laws and regulations, including banking, customs, tax and insurance laws, are at beck and call of these producers; perhaps many of their products are to the detriment of the country and people in terms of technology, quality, level of energy consumption and pollution. 

On the other hand, a broad swath of those who consider themselves producers are using their factories and manufacturing plans to take out cheap loans; after setting up a silo or a factory, and employing a handful of people, they invest a large part of the loans in land and housing or speculative activities, and then fail to repay k the installments of those cheap loans; in fact, they grow fat on the pretext of “production”. These “manufacturers” have the habit of whining about the threats to production when banks call on them to repay loans that have lost their value due to inflation and depreciation of local currency. 

 

 

An Irony

Ironically, the suspension of factory production or a company’s filing for bankruptcy is one of the tricks of these people to evade the repayment of installments and taxes, particularly the payment of workers’ insurance premiums and salaries. They soon register another company under a novel name and start anew. 

In the meantime, there is no news of legal action taken against these businessmen. 

Chapter 11 of the Commercial Code of Iran of 1932-33 on bankruptcy and the Law on Bankruptcy Settlement of 1940-41 have been approved to prevent the continuation of the destructive activities of bankrupt entities through fault or negligence. Article 412 of the Commercial Code of Iran reads: “The bankruptcy of a merchant or of a commercial company arises upon suspension of payment of sums due by them. Judgment declaring a merchant bankrupt, who died in a state of insolvency, may be given within one year of their death.”

Unfortunately, over the past decades, the country has faced a large number of bankrupts through fault or negligence, who re-register the company and open a bank account again and again by renaming their companies or changing the location of their business without the fear of the law. They apply for check-books and take out loans in foreign and local currency and spend them on speculative practices. 

They squander public resources and violate the rights of workers and employees, as well as the rights of people. When it comes to accountability and auditing, or the payment of insurance premiums, loan installments, tax and customs duties, they abuse the sacred words of “production” and “productive investment”.

 

 

Donating From People’s Pocket

The government and parliament might be fond of granting governmental rights (read people’s money) to these factories. However, from the moral, religious and legal perspectives, nobody is allowed to donate from other people’s pocket.

When it comes to reviewing the aforementioned plan [Support for Industrial and Production Enterprises], it’s better to exclude the claims of workers of manufacturing plants because the government has no jurisdiction over such claims, so the parliament and the government can’t forgive or prohibit prosecution.

At present, some employers not only do not pay their employees’ premium share, but also do not pay the 7% of the premiums they have already deducted from the workers’ monthly salary to the Social Security Organization. The organization’s failure to use legal tools to deal with such violations of social security law would practically lead to the violation of the rights of workers.

What is more noteworthy is that Article 49 of Iran’s Social Security Law reads, “the claims of the organization arising out of the execution of this law shall be considered as preferred claims”, and should be given priority in the collection of debtors’ property, according to Article 50 of the same law.

In addition, Articles 148 of Labor Law reads, “Employers of workshops subject to this law, shall be obligated, in accordance with the Social Security Act, to insure their workers” and Article 183 of the same law says, “employers who refrain from insuring their workers, shall be sentenced, apart from paying all the rights related to the worker [the employer’s share], in consideration of the conditions and options of the offender, and the degree of the offence, to a cash fine equivalent to 2 to 10 times the related insurance premium”. 

Long story short, the approval of parliamentarians’ proposal without excluding the claims related to workers and employees can first, exacerbate insurance evasion and second, worsen the imbalance between SSO’s resources and expenditures and the organizations’ budget deficit, and third, deprive workers of their rights and fourth, disrupt the process of providing services to the insured and pensioners. 

Interestingly, the government and parliament have allocated significant funds to support state organizations in the face of Covid-19 breakout over the past two years, but not a single rial has been given to the Social Security Organization. That being said, the government and parliament also seek to deprive the organization of its legal tools for collecting insurance claims. 

However, most governments in the world were quick to assist their social security systems in the aftermath of the pandemic. What we expect from the members of the parliament is that, if they are unwilling to assist the Social Security Organization, at least they try not to worsen the imbalance between the resources and expenditures of SSO and the organization’s budget deficit.