A state-sponsored research showed high tariffs (as much as 100 percent) limit the number of cars that could annually arrive in the country to a meager 30,000.

The government initially limited and eventually banned import of foreign cars in early 1992, causing great trouble to importing companies that had collected millions of dollars as advance payment from customers.
Nevertheless, Iran's borders remained closed to car imports, as a result of which Iranian streets were dominated by Paykans and the odd relics of the 1970s oil boom in the form of gas-guzzling Buicks, Cadillacs and Chevrolets.
Low oil prices during 1994-99 toughened the government stance for continuing the ban. Support for purchasing foreign sedans began to surface and gained strength after oil prices began to recover, prompting the parliament to grudgingly legalize car imports. Almost two years have passed since the government authorized car imports with high import tariffs, but only a dozen BMW cars have entered the Iranian shores.
Although car import tariffs have been reduced, the government has apparently not pinned much hope on car import revenues.
Countless legal, administrative and customs-related obstacles, in addition to high tariff rates, continue to discourage the import of foreign cars.

High Tariffs
A state-sponsored research showed high tariffs (as much as 100 percent) limit the number of cars that could annually arrive in the country to a meager 30,000. This is while the parliament predicts the import of up to 130,000 cars can fetch 16,000 billion rials in the form of taxes and customs duties.
Director of the Commerce Ministry's Car Order Registration Office
Nourollah Raf'ati recently told the Persian daily Iran that between March 21-May 21, the office booked orders for the import of 3,500 cars out of which only 400 were shipped in, according to Iran Customs Administration.
"The brands ordered are mainly Toyota, Benz and BMW," said Raf'ati, noting that no order has been placed yet for importing heavy vehicles.
"Even if all the orders do materialize, the import of only 14,000 cars would be possible by the end of this year (March 21), while the budget predicts the import of 130,000 cars to add 16,000 billion rials to state revenues," he said.
The official further said customs duties amounting to 200 million rials for importing each car will allow the government to earn 2,800 billion rials, provided 14,000 cars do arrive by the end of this year.
"This figure is meager compared with 36,000 billion rials as tax revenues and $40 billion as oil revenues are deposited into state account annually," he said.
Raf'ati noted that the import of 20,000-30,000 cars is equal to 2-3 percent of total domestic car production.
"Car imports could not exceed 0.5 percent of the total number of cars produced domestically."
He pointed out that a majority of Iranians seek cars costing between 50-120 million rials and this undermines prospects for imports, since high tariffs raise the costs of imported cars.
"The Iranian market has a limited capacity for expensive brands," he said.

Restrictions
According to the official, two groups of cars are currently showcased in the Iranian market, namely those produced by the German, US, western Europe and Japanese manufacturers, while the second group set up factories in east and south Asia, central and southern America, and Russia.
"The Iranian market would be more inclined, for the sake of price, toward the second group, though their imports could be hindered by organizations for failing to meet environmental and standards criteria," he said.
Of the five foreign

manufacturers that received permits from the ministries of industries and mines, oil, commerce and the Department of Environment two years ago, only three have made it through after undergoing tiresome procedures.
Raf'ati blames restrictive laws for the budget deficit caused by the failure of the car import initiative in the year ending March 2005.
"We have devised rules that are not illogical, but restrictive," he said, adding that these rules include committing car importers to provide after-sales services as well.
The official, however, stressed that foreign companies are basically concerned about lack of stable car import policies, which is another deterrent factor.
Many analysts believe it would take some time for the government to remove all the obstacles to car imports and say it was a big mistake on the part of the government to halt car imports a decade ago.
While the Commerce Ministry was in favor of a minimum 130-percent car import tariff, the Ministry of Industries and Mines insists that tariffs should not be lower than 147 percent.
The fourth development plan (2005-2010) has stipulated a gradual decline in tariffs.
Commerce Minister Mohammad Shariatmadari has said the anticipation of a decline in import tariffs in the next five years would only add to the dilemma. He predicts that these tariffs would most probably hover around 100 percent in the current Iranian year (ending March 2006).
According to the latest decision of the ministries of commerce and industries and mines, car import tariffs have been brought down from 130 to 100 percent for the current Iranian year.
The rate is expected to be slashed further to 50 percent in the course of the fourth plan.
Reza Veiseh, who heads the Industrial Development and Renovation Organization, has reportedly announced that new tariffs would be enforced from April.
"Iran's auto industry can talk of competition only when it is capable of manufacturing over a million cars annually," he said.
Studies show that the industry would not become competitive, unless the number of vehicles produced exceeds a million units per annum.

Stiff Opposition
The car import policy is facing stiff opposition from certain political and economic circles.
For example, a senior parliamentarian recently called for a halt to car imports, lashing out at those who accused supporters of domestic automotive industry "as members of a mafia".
Seyyed Hossein Hashemi, who heads Majlis Industries and Mines Commission, says no country in the world would create such a "worrisome challenge" for its national automobile industry.
"I think import tariff is a good mechanism to regulate the auto market, but the extent to which the government could use it is questionable," he said, stressing that tariffs should not be used to plunge the auto industry into a crisis.
The lawmaker noted that when the government reduces car import tariffs to 130 percent in less than a year, it means that it is determined to boost imports.
Giant carmaker Iran Khodro has announced it would not be hurt by car imports even if tariffs were reduced. Reza Raei, deputy chief of Iran Khodro, has said that most Iranian families cannot afford imported cars at twice their actual prices and would continue to purchase products of domestic companies.
"No imported car could compete with our price range," he said, adding that only Iran-assembled luxury cars could be affected by a possible 30-percent decline in import tariffs.

A faculty member of Allameh Tabatabaei College of Economics says any plan to hike salaries in certain state-run sectors for the sake of job satisfaction has to coincide with increase in production output; otherwise it will create inflation and price hikes and not result in sustainable development.
Resolving the existing problems by juggling with foreign exchange revenues or economic indices might seem rather simple, but they could ultimately prove to be a threat to the economy, Hatef Meidari added.
He asserted that the Iranian economy can maneuver very little in these two specific areas, adding that catching the "Austrian disease and the inability to strengthen the rial against the US dollar", as a result of independent policies in the past 26 years, paved the way for such economic procedures in Iran.
Referring to the strategy of independence in many sectors, he said that this had forced the government to act cautiously in terms of liberalizing imports in a bid to save the economy from recession.
Meidari criticized the policy and argued that the government has invested extensively in the domestic production sectors, "leaving us no choice but to keep the borders closed in an attempt to protect them from invasion of foreign products."
On increase in the volume of foreign exchange revenues at a time when the country will have a new president, he said, "It is unlikely that the new executive body will spend all the revenues for the sake of a superficial social welfare system. Efficient social welfare will largely depend on increasing the capacity of imports. In view of the economic structure of the country, a policy as such will never work."
He further spoke of devaluing the US dollar vis-ˆ-vis the rial, and argued that because of the problem, the moment the government withdraws some dollars from the foreign exchange reserve fund it also immediately calls on the Central Bank to print an equal amount of rials.
On what could possibly happen if the government decides to inject foreign exchange into the market, he said, "In that case, the price of dollar will go down but will reduce part of the government income. Reducing the value of the dollar will lead to increase in the volume of imports. This will put domestic products at risk and result in widespread bankruptcies."
Meidari highlighted the promises made by the president-elect regarding interest rate reduction and maintained that this would largely depend on improving the banking system and making reforms in the management structure and economic agencies. "As long as these reforms are not in place, reducing the interest rates will not have any positive impact on the economy", he added.