Tehran bazaar shuts its doors in anger at Ahmadinejad tax hike

Everything from dried rose petals to $5,000 (£3,300) silk carpets to cheap sweets and gaudy plastic sandals could be found on sale in Tehran's grand bazaar. The vast covered market, its narrow lanes typically heaving with shoppers and the raucous sounds of busy commerce, stands empty now, though. The bazaris, the city's merchant classes, have shut their doors in protest at tax hikes proposed by President Mahmoud Ahmadinejad.

For a second day yesterday, the authorities ordered a public holiday, ostensibly because of the unusually high summer temperatures, but in reality, many Iranians speculated, to camouflage the strike and head off any trigger for a mass outpouring of public protest. The merchants' action, which began last week, is a clear and potentially grave challenge to the authority of the hardline president.

Mr Ahmadinejad's standing had already been considerably weakened following the repressive handling of last year's post-election street demonstrations and a subsequent power struggle within the Islamic regime. The bazaar is a traditional stronghold of political and social conservatism and because its support for the Islamic revolution in 1979 was so pivotal, carries huge symbolism. For the president to be at odds with such a loyal institution suggests that bigger political trouble is brewing.

Anger in the commercial hub, which, at least until much of the economy fell under the control of the elite Republican Guards, used to be the nation's economic heartbeat, erupted over a decision to raise the rate of value-added tax. The gold sellers were reportedly the first to shut up shop, followed by others. Black banners were reported to have been draped over some stores and Iranian opposition news sites have reported clashes after security forces attempted to force the shops to resume trading.

The head of the union of fabric sellers in the old bazaar was allegedly detained after trying to rally fellow traders for a protest meeting. In the shoemakers' area of the bazaar, meanwhile, hundreds gathered at the end of last week, according to opposition reports (which could not be independently checked) chanting "Death to Ahmadinejad!" and "Death to this government!".

The government has already said it will back down on its initial proposal for a top rate of 70 per cent sales tax, but many of the merchants have remained defiant, saying they will stay closed because their annual taxes had risen so steeply in the past year.

Some complain that they are paying $5,000 a year, up from around $1,500 annually. Value-added taxes have risen by up to 15 per cent a year, depending on the commodity. "We cannot even pay salaries to our employees. How can we pay higher taxes?" Ali Akbarzadeh, a jewellery seller, told Reuters.

Faced with falling oil prices and a big ratcheting up of US and UN sanctions on its energy sector, Iran's government has been trying to introduce internal reforms, scaling back on the generous food subsidies that cushion Iranians from the true costs of production or importing, and raising taxation.

But with inflation and unemployment rampant, many are feeling the pinch. Many blame Mr Ahmadinejad for economic mismanagement, since, during his first term, he lavished oil revenue on certain sectors.

There was some speculation that the striking shopkeepers were affiliated to factions within the Islamic regime that have grown disaffected with the president and his inner circle following last year's poll. Some are said to be close to Ali Akbar Rafsanjani, the former president, a leading cleric and sworn enemy of Mr Ahmadinejad.