Do you think Rafsanjani pays sales tax?

Ahmadinejad 0, shopkeepers 1

Iran's president has lost his battle with the all-powerful trading community over VAT. It's a significant defeat
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* M Cist
* guardian.co.uk, Tuesday 21 October 2008 20.30 BST
* Article history

President Ahmadinejad has had to cave into strikers across Iran. Strikes are illegal, so how is it that industrial action succeeded when years of strikes by factory workers and government employees have been brutally put down? Well, this was a strike by not just your average group of workers.

Tens of thousands of small shops make up the labyrinthine bazaars of Tehran and together their owners comprise the class that legitimises the Iranian government. Ayatollah Khomeini and his successor would be nothing without the bazaaris. Authors Andreas Malm and Shora Esmailian, in Iran on the Brink characterise the centuries-old bazaar as something that fosters a powerful petit bourgeoisie every bit as much as the coal-mines of 19th-century Europe fostered a proletariat. Well, President Ahmadinejad just had the gall to take them on. And he lost.

It was the Shah's dreams of demolishing the bazaars that, finally, cost him – and his US backers – his throne. The bazaaris together with the clerical class outflanked the left and sewed up the coalition that has ruled Iran since the Islamic Revolution. Somehow, President Ahmadinejad thought he could implement a 3% VAT charge on the class that keeps him in power.

There were general strikes in the bazaars of Isfahan, Mashhad, Tabriz and Tehran. "Asshole" was what they were calling the president when I went through the alleys of Tehran's dusty bazaar where gruff traders work long hours to maintain some of the richest livelihoods in Iran. "Why should we pay tax when none of Khamenei's cronies do? Do you think Rafsanjani pays sales tax?" He was referring to former president, Hashemi Rafsanjani, chairman of the assembly of experts which theoretically chooses Ayatollah Khamanei's successor. Rafsanjani also chairs the expediency council which mediates between parliament and those who vet parliamentary candidates, and his family is very, very rich.

After the jewellery trader gave me some tea, he changed the numbers on a digital board to reflect the creeping rise in gold prices and said he had had enough of Ahmadinejad. He said his friends on the Bonyad-e Mostazafin or Foundation of the Oppressed would destroy the president. The Bonyads are "charitable" institutions that dominate the economy. This Bonyad, exempt from any auditing or taxes, produces two-thirds of all the bricks, tyres and chemicals in the country. They even produce the home-grown, anti-imperialist cola, Zam-Zam, which traces its roots to the days when bazaaris's pressured the government to kick Pepsi out of the country because it was hurting the bazaars' lemonade makers.

I asked about strikes being illegal and he said that if Ahmadinejad didn't cancel the tax, the bazaaris would have students, doctors and nurses out on the streets in support. "We would overthrow the government just like we did in 1979!"

"Why are we spending all our money on Hizbollah and Hamas when we need money here?" he asked, "at least gold prices will soon rise because of George Bush."

I walked through the maze of stalls selling microwaves, carpets, chadors, pots and pans, stationery and duvets and out towards the late 18th-century mosque scarred by scaffolding with its courtyard of switched-off fountains. It was as quiet as I had ever seen it. Within hours, Ahmadinejad ordered the economy ministry to back down. Parliament had approved the tax last year and finally summoned up the courage to implement it only to find itself powerless in the face of the merchants.

Official inflation is around 30% and when the government sent a minister, Ali Akbar Arab-Mazar, to pacify Isfahan's bazaar, he was told to go back to Tehran. Trying to put a brave face on it, Ahmadinejad's new finance minister, Shamsoddin Hosseini said on TV that the government should have explained things better. As things stand, it looks like Ahmadinejad cannot implement any of the plans drawn up by his economic advisers. What they fail to understand is that the influx of foreign remittances pump up the skyrocketing property markets of Iran's big cities. That's where the inflation comes from.

Already, the perception that there is less of an imminent threat from Israel or the United States is causing problems for the Iranian government. It has been relying on the external menace to prop up political power and the less Bush talks, the more room there is in Iran for dissent. Perhaps only John McCain can save a regime that smells both of Soviet communism and the Sicilian Mafia. Then again, Senator Obama's desire for more sanctions will help the Iranian government, too.