Iranian Government Tries to Make Contraband Less Tempting

EghtesadOnline: Contraband worth 600 billion rials ($16.8 million) was confiscated during the first four months of the current Iranian year (March 20, June 20), an 80% rise compared to the same period last year, director general of the Islamic Republic of Iran Customs Administration, Masoud Karbasian was quoted by IRNA as saying.

News ID: ۷۳۶۵۸۱

04 September 2016

Authorities recently stepped up efforts to curb smuggling. Last month around 400 tons of illegally imported goods, including food and clothing, worth 150 billion rials ($4.24) were destroyed in Tehran, in what was said to be the largest destruction of contraband in Iran after the 1979 revolution.

Earlier, the Anti-Smuggling Organization announced that the estimated value of goods smuggled in and out of the country in the last fiscal year that ended in March stood at $15.5 billion, 27.7% less compared to previous fiscal year.

Of the total, $14.5 billion worth of goods were smuggled into the country and $1 billion were smuggled out.

Apparel, foodstuff, mobile phones, gold ingots and household appliances top the list of incoming contraband accounting for 41% of the illegal goods.

Fuel is the main item smuggled out of Iran due to its cheap prices compared to the neighboring states like Turkey and Pakistan.

According to the Anti-Smuggling Organization, per capita consumption of contraband in Iran stood at $197 last year.

Contraband makes up 83% of the mobile phone market, 47% of toy market, 27% of the apparel market and 21% of the household appliances market.

Macroeconomic Factors

Apart from preventive measures, the government’s macroeconomic policies, including taming the runaway inflation and stabilizing foreign exchange rates, have contributed to the recent decline in illegal trade.

With disciplined monetary policies, the government of President Hassan Rouhani has been able to contain the inflation rate from the all-time high of  46% when he was elected in 2013 to 10% in 2016.

Foreign exchange rates have also seen minor fluctuations in the past three years. Currency rates shot up threefold during the former administration as the western economic sanctions on Iran were tightened. In 2011 the rial lost almost 70% of its value in a matter of days.

The situation turned the country into a breeding ground for profiteers who took undue advantage of the valueless national currency by smuggling goods and selling forex in the black market.

Galloping inflation, on the other hand, pushed up the prices of raw materials, which led to the hike in the prices of domestically-manufactured goods. Demand for smuggled products, which were cheaper in the absence of tax, tariffs or customs duties, grew rapidly, making illegal trade more tempting and lucrative.

Lower tariffs in recent years checked those past patterns  and reduced the urge to smuggle everything possible, reports Financial Tribune.

According to the Anti-Smuggling Organization, average import tariffs were lowered to 18% last year from 27% two years before.

Market observers rightly point out that high tariffs and import bans have also done more than their share to make a bad situation worse by giving rise to the seemingly controllable smuggling.

Moreover, by implementing electronic systems in customs administration as opposed to paperwork, the government facilitated trade, lowered costs and reduced the bloated bureaucracy to a considerable extent. Howver, much remains to be done and Rouhani on more occasions than one has called for easing formalities in trade and implementing business-friendly procedures.

Businesses usually opt for illegal trade channels to avoid cumbersome customs regulations, time-consuming procedures and high logistical costs. This is while electronic systems, experts believe, have helped bring 100-day customs procedures down to 15.

The government has also been using a tracking system to trace goods  throughout the production and distribution stages. The system has been used in case of medicine and is set to become operational for cigarettes and clothes, which make up a sizable share of the annual $15 billion contraband bill.