Iranian President Mahmoud Ahmadinejad ordered his government to suspend a controversial new sales tax Thursday, a day after a rare strike by merchants worried about how the new measure would affect their business.
The 3 percent value-added tax imposed in September sparked fears of price hikes and added to the list of unpopular economic steps like rationing of subsidized gasoline that Ahmadinejad has taken to shore up the government's budget.
The Iranian government relies on oil revenue for 80 percent of its budget. But crude prices have fallen about 40 percent since record highs in July. Taxes make up the remaining 20 percent of the budget.
"When oil revenue drops, the government applies more tax, and this causes discontent among businesses that are already suffering from recession," said Iranian political analyst Saeed Laylaz.
Scores of merchants across Iran shut their stores Wednesday to protest the new sales tax.
The strike was led by the country's goldsmiths, which are among the few retailers in Iran that issue sales receipts that would make it easy for the government to track whether they are charging the 3 percent tax.
Historically, a series of merchant strikes helped depose the Shah of Iran. That fact was not lost upon the current government, as it publicly backed down on the matter. Still, falling oil prices will continue to put a strain on Iran's economic situation, and taxation will probably be revisited.