US embassy cable - 05SANAA695

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000695 
 
SIPDIS 
 
E.O. 12958: DECL: 03/21/2015 
TAGS: PGOV, PREL, PHUM, YM, ECON/COM, DOMESTIC POLITICS 
SUBJECT: SMALL BUSINESS OWNERS TAKE TO THE STREETS 
 
REF: A. SANAA 0037 
     B. SANAA 0426 
 
Classified By: CDA Nabeel Khoury for Reasons 1.4 (b) and (d). 
 
1. (C) Summary: Many small business owners across Yemen 
closed their shops and took to the streets, March 13-18, in 
protest of ROYG plans to implement a general sales tax as 
part of its economic reform package.  Demonstrations occurred 
in the cities of Hodeidah, Taiz, Sanaa and Aden, with a few 
developing into riots.  Senior ruling party GPC officials 
accused opposition parties of fomenting the unrest and issued 
a stern warning to opposition leaders not to "play with 
fire."  Islah party leaders denied being behind the unrest 
but told CDA in confidence that they were considering their 
"options."  End Summary. 
 
2. (U) Widespread strikes and demonstrations took place in 
the cities of Taiz, Hodeidah, Sanaa and Aden after 
shopkeepers closed their doors and took to the streets to 
protest a planned general sales tax (GST).  The largely 
peaceful demonstrations, which began in Sanaa on March 13, 
ended nationwide on March 18.  There were unconfirmed 
accounts of violence breaking out in Taiz after security 
forces rushed a crowd of demonstrators, resulting, according 
to the local press, in a few minor injuries.  Semi-official 
newspaper "al-Thawra" reported some damage to private 
property.  The demonstrations were relatively small scale, 
with the largest reportedly reaching around 300 participants 
in Sanaa and Taiz, and less in Hodeidah and Aden. 
 
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Background 
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3. (U) Background: The general sales tax is part of the 
economic reform package that includes reducing the diesel 
subsidy, reforming civil service, rolling back tariffs and 
implementing a General Sales Tax (GST) (ref A).  The GST is 
widely misunderstood with businessmen complaining that the 
tax will put an undue burden on the average Yemeni.  In fact, 
modeled after a program in Lebanon, the GST will be levied at 
factories and importers rather than at retail outlets. 
Service industries will be taxed at ten percent with gross 
receipts totaling more than 40 million Riyals (217,000 USD). 
According to press reports on the GST, most food products are 
exempt.  Ministry of Finance officials have predicted the 
GST's effect on inflation to be minimal because in some cases 
the tax burden will be reduced.  (Note: Current taxes range 
from five percent to twenty five percent on imports and 
factory production.  End note).  End Background. 
 
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ROYG to Opposition: Don't Play With Fire! 
----------------------------------------- 
 
4. (U) "Al-Thawra" claimed that "investigations" revealed 
that Islah and the Joint Meeting Parties (JMP), an opposition 
party coalition, were to blame for the strikes.  The paper 
reported that Interior Minister al-Alimi chaired a special 
security committee meeting to discuss these "adverse 
incidents" and warned the JMP and "other political forces" 
against "playing with fire."  The Yemeni News Agency Saba 
quoted a "senior Ministry of Interior official" saying the 
demonstrations were orchestrated by the opposition Islah 
party (ref) and the Joint Meeting Parties (JMP), a coalition 
of opposition parties. 
 
5. (U) Parliament suspended its March 20 session after the 
head of the GPC bloc, Sultan al-Barakani, accused the JMP of 
"sabotage and terrorism" and requested a full parliamentary 
investigation.  Speaker of Parliament and Islah party chief 
Abdullah al-Ahmar agreed to opposition MP's demands to summon 
the Ministers of Interior and Information March 23 to 
question their claims that JMP is responsible for the riots. 
On March 21, Parliament also formed a multi-party "fact 
finding" committee to investigate causes of the 
demonstrations. 
 
6. (C) Both Islah and JMP deny they are behind the strikes. 
Mohammed al-Matawkil, Professor of Political Science at Sanaa 
University and Secretary General of the Union of Popular 
Forces (UPF) shared his belief with poloff that the sales tax 
was only an excuse, and not the true reason for the recent 
strikes and demonstrations.  Nabil Sufi, prominent Sanaa 
journalist and Islah member agreed, insisting that the Yemeni 
street does not oppose the sales tax.  Thabit and Saif also 
hold this view, believing shopkeepers were enraged at the 
prospect of having to deal with inept and corrupt ROYG tax 
authority officials on a daily basis. 
 
7. (C) Some Embassy contacts say the strikes were inspired, 
although likely not organized, by the United Yemeni Chambers 
of Commerce (UYCC) under the leadership of Mohammed Abdo 
Saeed, ironically a GPC member and related to the prominent 
Hayel-Saeed business family.  Saif and Thabet both attribute 
the strikes to a handful of large family business 
conglomerates, which they believe gave the order to close 
their shops in all major cities.  Saif added that the UYCC 
leadership met recently with ROYG officials to push their 
position -- comprehensive economic reforms should be 
implemented before levying the general tax, otherwise 
business will be forced to feed money in to a corrupt tax 
system. 
 
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Comment 
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8. (C) According to Hassan Zeid, political chair of the 
al-Haq opposition party and member of the Political Forum, 
President Saleh, although secure in his reelection bid, is 
worried at the prospect of even a minor challenge as a 
demonstrable reminder that "his reign cannot last forever." 
President Saleh, he and other insiders contend, fears that 
the latest strikes, which came on the heels of strikes by the 
Sanaa Medical Syndicate and Sanaa University professors, as 
well as recent troubles in Saada (septel) may demonstrate 
growing hostility in the Yemeni street.  Last weekend's 
strikes are not likely to spawn a nationwide challenge to the 
government's authority, and with Sheikh al-Ahmar at the helm, 
it is unlikely that Islah would seriously challenge the 
President.  More likely, the Yemeni population's patience is 
beginning to wear thin with unceasing ROYG corruption. 
Although Saleh and the GPC are confident in a 2006 
presidential victory, the latest ROYG attack on the 
opposition in response to relatively small-scale 
demonstrations likely reflects GPC's fears that Islah has the 
ability to move the street if it so chooses.  In a country 
where he must balance political, tribal, religious and 
business interests, the prospect of stronger and more unified 
opposition this close to an election year may be too much for 
Saleh to stomach. 
 
9. (C) Comment continued: Saleh's decision to send VP Abd 
Rabbu to represent him at the Algeria summit probably 
reflects his unease at recent security incidents, to Whit, 
the tax riots coming on the heels of university strikes and a 
recent clash in Saada (septel).  A ranking Islah party leader 
told CDA that Islah did not call for the strikes but that a 
serious debate is taking place among party leader to consider 
Islah's options in expressing their discontent with their 
government,s ineptitude and corruption.  Saleh, with his 
ears ever to the ground, may have good reason to stay home 
from Algiers to ensure things do not get out of hand at home. 
 End Comment. 
Khoury