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Iran's Government Fails To End Bazaar Tax Strike

Iranian President Mahmud Ahmadinejad is under fire over inflation.

Iranian President Mahmud Ahmadinejad is under fire over inflation.

TEHRAN (Reuters) -- A weeklong strike against a new value added tax (VAT) appeared to be spreading in Tehran's bazaar, even though the Iranian government suspended the measure for two months, witnesses said.

One merchant said all shops in his section of the capital's vast main bazaar were shut.

"All the shops near us are closed," he said by telephone, declining to be named. A Reuters witness said only a few shops seemed open for business.

The ISNA news agency said "some people" armed with sticks and stones shattered the windows of a bank in the bazaar area, suggesting fear of violence had also prompted some shop-owners to close. Police intervened to end the trouble, it said.

Work stoppages among bazaar merchants, an historically powerful business group, are rare in the world's fourth-largest oil producer and represent a new economic challenge for President Mahmud Ahmadinejad ahead of next year's presidential election.

"This is the first time the bazaar is doing this, protesting against a government law, after the victory of the Islamic Revolution [in 1979]," one Iranian analyst said.

Ahmadinejad, who came to power in 2005 on a pledge to share out Iran's oil wealth more fairly, is already under fire from political rivals, media, and the public over his failure to rein in rising inflation now running at an annual 29 percent.

He ordered a two-month suspension on October 10 of the scheme to introduce a 3 percent VAT rate, following days of protests by shop owners in bazaars in Tehran and other Iranian cities. The tax forms part of wider reforms planned by the government.

But Iranian newspapers said merchants, fearing the new tax would increase prices and lower demand for their goods, wanted it to be abolished altogether and had continued their action.

'No Choice'

Traders in textiles and gold jewelery were among groups who were closed on October 11 in Tehran, business daily "Sarmayeh" said.

The Reuters witness said other parts of the bazaar were shut on October 12. "It is hurting our business to close, but we have no other choice," said a 35-year-old merchant.

The government has rejected the criticism and argued the overall tax burden would not increase.

"Lifting the VAT law is not possible, but it should be better explained," Commerce Minister Massud Mirkazemi was quoted as saying by the official IRNA news agency.

The analyst, who declined to be named, said Ahmadinejad faced a difficult situation: He may be accused of siding with wealthy merchants if he agreed to scrap the VAT law but risked a worsening situation in the bazaar if he did not.

Leading Iranian reformist Mehdi Karrubi has became the first major figure to announce he would run in the June election, when Ahmadinejad is widely expected to stand for a new term.

His government also wants to reform Iran's extensive subsidy system to target payments more directly to those in need, but critics say it could further stoke inflation.

Iran has reaped windfall oil revenue gains in recent years, but the price of crude has plunged more than 45 percent from a July peak of $147. Analysts also say its nuclear dispute with the West is making foreign firms more wary of investing in Iran.