Today, Iran’s economy is a masterpiece of structural ambiguity. It is near impossible to draw clear lines between the public and the private.
Compounding the structural challenges that Rouhani faces are the bonyads. These foundations have vast holdings in real estate, agriculture, energy, transportation and banking, but they refuse to pay taxes, arguing that they have a public mission. During the recent presidential campaign, conservative candidate Ebrahim Raisi, head of Astan Quds Razavi (AQR), Iran’s wealthiest foundation, was asked why his employer does not pay taxes.
Raisi’s response was that the AQR is exempt due to a decree issued by Ayatollah Ruhollah Khomeini, founder of the Islamic Republic. This prompted Kamel Taghavinejad, head of the National Tax Administration, to issue a statement reminding Raisi that exemption does not extend to value added tax and other tariffs, which AQR refuses to pay. According to the Central Bank of Iran, “institutions and foundations of the Islamic Revolution” in the period March-November 2016 paid only 15% of projected taxes.
For decades, the mainstream view among observers has been that the Iranian economy is the domain of the executive branch. The government indeed remains the owner of sizeable enterprises and properties. It also regulates the economy. Its numerous committees and councils address issues ranging from the quality of bread to industrial standards for fire-resistant materials.
The emerging quasi-state sector, however, has been challenging the executive branch’s dominance in the economy and defying its authority as regulator. This has created a new reality on the ground, one that must be considered when assessing the government’s performance or predicting the impact of its policies.