TEHRAN, Oct 8, 2008 (AFP) - Shopkeepers in Iran's traditional bazaars pressed on with strikes on Wednesday to protest against the government's introduction of value added tax amid mounting pressure on retail prices.

An Iranian textile shopkeeper sits in his shop at Tehran's Bazaar Photo : Behrouz Mehri/AFP

An AFP correspondent saw shuttered stalls in the main bazaar in the capital amid press reports of shutdowns in the big provincial cities of Isfahan, Mashhad and Tabriz.

Iranian media said that the authorities had reached agreement with the jewellers' guild on ending their action but there were conflicting reports about its terms.

The moderate Etemad daily said shops in the bazaar of the central city of Isfahan, Iran's third largest, have been shut for several days in protest against the VAT of 3 percent introduced by the government of President Mahmoud Ahmadinejad.

The Kargozaran newspaper said around 3,000 shopkeepers gathered outside the Isfahan governor's office on Monday to protest against the new tax introduced on September 22.

Major traders at the bazaar have withdrawn their money from banks in the city to protest against the measure, saying it will cause price increases which they will have to pass on to consumers, Kargozaran said.

Some shopkeepers in Tehran's main bazaar took part in the protest on Wednesday, an AFP correspondent witnessed. Some stallholders in the jewellery, gold and textile sections closed their shutters.

"If the government does not back down, we will continue until it does," one jeweller told AFP asking not to be named.

A textile dealer told AFP that while other sections of the bazaar remained open, "this movement can expand."

In the big northwestern city of Tabriz, gold dealers and jewellers went on strike, the ISNA news agency reported.

Iran's tax authority issued a statement through official media saying it had reached agreement with the Tehran jewellers' guild on the implementation of the new VAT levy.

It stressed however: "There will be no delay, not even a temporary one, in implementing this law."

The president of the Tehran jewellers' guild, Kourosh Goharbeen, contradicted that account however, telling the ISNA news agency: "In the meeting we had with tax officials we agreed to postpone implementation of VAT in our trade for three months.

"A working group has been set up consisting of representatives of jewellers' guilds from across the country along with economy ministry officials to decide on how to carry out this new tax or find ways of implementing some tax exemption on this trade," he added.

Goharbeen appealed to fellow jewellers nonetheless not to keep their shops closed in the meantime.

Shopkeepers have voiced concern that the introduction of VAT will hit their businesses by adding to the woes of consumers.

Rises in retail prices have accelerated since Ahmadinejad's government took power in 2005. In September, the cost of a basket of 45 staple food items was up 50 percent on a year earlier, press reports said.

Annual inflation topped 29 percent in the Iranian calendar month that ended on September 21, a central bank report said on Wednesday.

Bazaars in Iran play an important political as well as economic role. Bazaar merchants contributed to the collapse of the regime of Mohammad Reza Pahlavi during the 1979 Islamic revolution, when they went on long strikes.