Stung by the first major protest by bazaar merchants since the fall of the Shah almost 30 years ago, Iran's government plans to put off a new value-added tax until after presidential elections, media reported on Tuesday.
Traders in Tehran and other cities closed their shops earlier this month to protest the three percent value-added tax, a move that forced President Mahmoud Ahmadinejad to suspend the measure just weeks after it was introduced.
It was the first time bazaar shop-owners had taken action on such a scale since the 1979 Islamic revolution, when they played a key role in ousting the U.S.-backed shah.
Iran's economy is 60 percent dependent on oil income and the sharp fall of global oil prices threatens to put a hole in its finances, a shortfall the government had hoped to fill by increasing tax revenues.
Crude has fallen around 50 percent from a July peak of $147 a barrel and U.S. light crude was trading at around $71.80 at 1516 GMT. Some analysts say Iran needs its crude at $70-$75 a barrel to keep its current account in the black.
Shopkeepers say the imposition of a value-added tax will only push up further already high prices and hurt business.
The protests pose an economic and political challenge to Ahmadinejad eight months before he is expected to seek a new term as president of the world's fourth-largest crude producer in a June election.
Ahmadinejad said at an export event on Monday the government would soon propose to parliament a one-year delay in implementing the tax, business daily Poul and other media reported, pushing it beyond the June election.
"We will have time during this year to pave the ground to execute this law," he said.
The tax also forms part of wider economic reforms planned by his conservative government, including changes to extensive subsidy payments to more directly target those in need. Ahmadinejad made clear he was not completely abandoning the tax.
"We all know that we should all pay taxes," he said.
Ahmadinejad came to power in 2005 on a pledge to share out Iran's oil wealth more fairly. But political opponents and other critics say his profligate spending of petrodollars has fuelled inflation, now running at an annual almost 30 percent.
Some analysts believe Ahmadinejad remains the favourite to win the election as he enjoys the apparent support of Iran's Supreme Leader Ayatollah Ali Khamenei, especially in his handling of Tehran's nuclear dispute with the West.
