How Iran can address its Informal Economy

Within that context — and based on the positive experiences of other countries — the Iranian government has started to look at reforms in areas such as fighting corruption; introducing tax reforms, including e-government solutions to reduce the potential for corrupt dealings; reforming customs regulations; promotion of entrepreneurship, especially support for young entrepreneurs; and promotion of cooperatives as an instrument of formalization of informal individual activity.

While these steps will gradually shift some employment to the formal sector, there will be the need for much more comprehensive reforms that will have to involve all three branches of government.

One of the key reforms will be amending the labor law, including the provisions for social security. In fact, Iranian businesses are most affected by very rigid labor and social security regulations as well as arbitrary implementation processes that have been considered the main barrier to permanent employment by Iranian companies. As mentioned above, 6 million active Iranians are not covered by social security arrangements, mainly due to the inefficiency of the current regulations.

Various past attempts to amend the labor law have faced political and institutional bottlenecks, and even the latest attempt by the Rouhani administration has been hampered by political lobbying to an extent that the government has taken the original bill back from parliament to revise it.

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