Sales tax generates fear among citizens and businessmen

Thousands of citizens and businessmen have been protesting on the streets of several Yemini cities against a sales tax to be enforced in July 2005. It is part of economic reforms recommended by the World Bank, which locals say will severely affect the purchasing power of the poor. The demonstrations, which took place in various governorates simultaneously, were a public outcry at the 10 percent tax on basic commodities, leaving more than 50 percent of the population economically vulnerable, according to experts. In the capital Sana, traders and shopkeepers closed their stores in protest, while hundreds of people joined demonstrations on the streets. Shops in two of the main commercial centres closed and owners staged a sit-in outside government offices. Ordinary Yemenis are worried that the implementation of the tax will put an increasing financial burden on them. "We cannot even afford to buy basic things right now. What will happen to us when such a law is implemented? We are going to die of hunger when we have to pay taxes for everything we have to buy," Ahmad Saeed, told IRIN while protesting on the streets of the capital. The scene in Hudaidah province, 226 km southwest of Sana, was more tense as hundreds of people went out on the streets shouting. Reports say two people were injured in clashes there. In Taiz, some 250 km south of the capital, as many as nine people were reported injured and another 10 detained. An official at the Ministry of Interior accused opposition parties of exploiting the situation. "The Ministry of Interior holds the opposition parties, mainly the Islamist party Islah, responsible for these protests," he told IRIN. Opposition parties deny these accusations and said the tax would increase pressure on the poor, blaming corruption for Yemen's economic woes. The Trade and Commerce Chambers (TCC) union has demanded the cancellation or amendment of the sales tax law in order to decrease the burden it would put on businesses. "The law, which is being reccomended the World Bank and the International Monetary Fund, will put a heavy burden on the shoulders of the ordinary people. "The reforms of the World Bank have not improved the economic situation, boosting investment, rather they just want to levy a lot of taxes which the people are unable to pay. The sales tax will reduce the purchasing power of the people," Mohammed al-Zubairi, member of the TCC union told IRIN in Sana. No one was available for comment from the World Bank in Sana, but the bank says such reforms are necessary to strengthen the country's economy. Over 42 percent of the Yemini population live below the poverty line on under US $2 per day and illiteracy is estimated at 50 percent. The average annual individual income is $450 and unemployment was running at 37 percent in 2003, according to World Bank statistics. The government says the sales tax would be applied instead of the previous tax, which was called production and consumption tax. "The implementation of the sales tax will lead to more moderate consumption, encourage imports, and increase government resources to support and finance basic development projects," a government official, who did not want to be named, told IRIN. "In fact, one of the features of the law is to achieve a sense of fairness between national and imported products, exempting the basic services from taxes, encouraging investment and fighting tax evasion," he added. However, traders believe that the previous tax system was much more efficient and much better suited to Yemen as it was related to household income. Other businessmen warned that the multi-taxation system would not provide an appropriate environment for investment and might push local investors to quit the country. "Taxation is carried out to achieve social justice, but here it is not for this purpose. This law will encourage tax evasion, which is already estimated at 56 percent due to smuggling of commodities which the tax authority is not able to control," Jamal al-Mutarib, a member of the TCC, told IRIN.