Iranian Private Sector Presents Demands from the New Gov't

Iranians reelected President Hassan Rouhani on May 19.

While he will be taking the presidency oath for the second time in August, speculations are rife about his choice of Cabinet and whether there will be changes for the better.

Officials and representatives of the private sector have been quick in putting forward their expectations and demands from the new government during the next four-year term.

In a meeting of Iran Chamber of Commerce, Industries, Mines and Agriculture's board of representatives held on Sunday, Gholamreza Shafeie, the head of the chamber, outlined the main demands of Iranian business owners.

"The private sector is grateful for the positive measures taken by the government so far, but given the shortcomings in the country's business environment, it would like to mention a number of fields that deserve urgent attention. To overcome the problems facing these fields, a strategic economic development plan should be designed," he was quoted as saying by ICCIMA's news portal.

   Workers' Insurance Fees

One factor increasing production costs in Iran, according to Shafeie, is the employers' high share (around 25.9% of profit) in paying workers' insurance fees.

"In recent years, there has been a call for trilateral cooperation among the government, employers and workers' organizations to design and draft new regulations related to labor affairs. As such, the private sector demands the above-mentioned share to be lessened for employers," he said.

  Tax System Loopholes

The ICCIMA chief believes Iran's taxation system has structural problems ranging from the use of traditional methods in collecting taxes and a lack of access to taxpayers' income information.

"Sometimes people and entities, which are not eligible, are made to pay taxes while others who are required to pay are exempted," he said. According to Iranian economist, Hadi Haqshenas, at present, only 40% of Iran's economic players are paying tax and of the remaining 60%, 40% are exempt and 20% evade payment.

"One main problem is that while drafting the budget outlay, the share of tax revenues is increased annually. This is done without paying heed to economic factors that can bring about such an increase in the first place such as gross domestic product growth, the value-added growth of economic sectors, inflation and tax regulations," he said.

"We expect discriminatory tax exemptions to be abolished and tax incentives to become targeted in favor of production."

 Inefficiencies in Customs Regulations, Controls

Referring to the shortcomings of Iran's customs affairs, Shafeie said some of the hurdles facing the private sector include the incomprehensiveness of value determination systems, bureaucratic corruption, the high number of customs offices that prevent officials from establishing efficient control over customs procedures, and improper interaction between the customs administrations and other bodies and organizations involved.

"Therefore, there is a need for customs offices to improve their performance," he said.

  Confusing Statistics

Enumerating the problems caused by lack of transparent and precise statistics, the official said delays and changes in the nature, quantity and date of announcing data on the part of governments and officials create confusion.

"Not following statistical standards and the incompatibility of data released by different bodies whose responsibilities overlap make it very difficult for one to get a clear picture of the economic realities, impact expert opinions and economic policymaking, and impede an accurate understanding of the shortcomings and problems in different fields," he said. As a case in point, both the Central Bank of Iran and the Statistical Center of Iran are in charge of releasing periodical statistics on macroeconomic indices, which often differ from one another.

  Plethora of Regulations

Shafeie believes that there are far more regulations than is necessary. These regulations are opaque, complicated and open to interpretation.

"This creates financial and bureaucratic corruption and increases production costs in a way that most businesses prefer to engage in black market activities. This makes obtaining permits time-consuming and costly," he said.

"Under the circumstances, people are reluctant to engage in official and legal economic activities due to the fact that abiding by this plethora of non-transparent rules is back-breaking. We are not saying all regulations have to be eliminated, but we demand that the number declines and quality improve."

There are too many tariff categories while tariffs themselves are high.

According to the ICCIMA chairman, private sector requests that the tariff system and non-tariff restrictions be reformed and meet the World Trade Organization standards.

Twenty years on, after Iran first submitted an application for accession to the World Trade Organization, the country remains the world's biggest economy outside the world body.

 Need for Free Market, True Privatization

Shafeie believes the government has to step back and minimize its interference in the market.

"But before that, the government has to invigorate the production sector by extending targeted and efficient support. It is widely believed that at least two-thirds of Iran's economy are owned and run by state-owned or quasi-state entities," he said.

Criticizing the process of privatization in Iran, Shafeie called for transferring state-owned enterprises to the real private sector.

Blaming the stiff resistance from profiteers, Economy Minister Ali Tayyebnia had earlier said rent-seeking, astronomical executive salaries and cronyism are examples of corruption in state-run companies.

After the 1979 Islamic Revolution of Iran, almost all strategic economic sectors were nationalized or expropriated for the purpose of redistribution of wealth. Under Article 44 of the Iranian Constitution, the government owns all major industries. In 2008, a new wave of criticism over the disproportionate state ownership and its inefficiencies in promoting economic development in the country brought attention to the article.

The Law on Implementation of Article 44 of the Constitution, which redefined the limitations on private sector participation in the economy, was drafted. The law kept the core management of the government in main industries and allowed privatization of all other activities or participation of the private sector in expanding the previously public sector.

The process marks a move toward market economy and aims to achieve full privatization.

However, according to Mir Ali Ashraf Abdollah Pouri-Hosseini, the head of Iranian Privatization Organization, the current surge of opposition toward privatization is "shocking."