Iran Seizes 73% More Contraband in 2018-19

EghtesadOnline: Close to 74.3 trillion rials ($526 million) worth of smuggled goods were confiscated in the last Iranian year (March 2018-19), which shows a 73.1% surge in the value of seizures compared with the year before.

News ID: ۷۴۷۴۳۸

28 May 2019

The above figures have been released by the Headquarters to Combat Smuggling of Goods and Foreign Exchanges, the Organization for Collection and Sales of State-Owned Properties of Iran and Tazirat Organization (a judiciary-affiliated oversight body dealing with trading offences), Mehr News Agency reported.

Topping the list of confiscations were household appliances worth $67.29 (indicating a rise of 127.4% compared to the year before), automotives worth $52.36 million (up 323%) and food products worth $27 million (down 10.7%).

Other contraband goods confiscated during the period included cosmetics and toiletries ($24.68 million), oil products ($18.27 million), livestock and poultry ($17.02 million), auto spare parts ($16.45 million), mobile phones ($15.68 million), alcoholic beverages ($13.64 million), satellite equipment ($13.05 million), apparel ($13.04 million), computer equipment ($12.9 million), rice ($12.04 million), textile ($12.18 million), armament and ammunition ($11.15 million) and cigarettes ($10.51 million), Financial Tribune reported.

Out of the aforementioned items, oil products (especially fuel), livestock and poultry were the main goods heading out while the rest were being smuggled into the country.

Underground Economy

Data on the value of smuggling, as part of Iran's underground economy, are scant.

Latest data show the total value of smuggled goods during the three Iranian fiscal years March 2013-14, March 2014-15 and March 2015-16 stood at $25 billion, $19.8 billion and $15 billion respectively.

In the fiscal 2016-17, the number reportedly shrank to $12-13 billion, according to the Headquarters to Combat Smuggling of Goods and Foreign Exchange. Data past the fiscal 2015-16 were not available.

Iran’s underground economy, according to latest data disclosed by the Ministry of Economic Affairs and Finance, was worth 5,360 trillion rials ($37.74 billion) in the year ending March 20, 2018.

In other words, the part of the economy that neither pays tax nor is monitored in any form by the government, made up more than 36% of the country’s gross domestic product in the fiscal 2017-18.

According to Investopedia, the underground economy refers to economic transactions that are deemed illegal, either because the goods or services traded are unlawful in nature, or because transactions fail to comply with governmental reporting requirements. It is alternatively referred to as the shadow economy, the black market, or the informal economy.

Primary examples of underground economic activity include untaxed labor, the untaxed sale of physical goods and the smuggling of goods into a country to avoid paying duties at the border.

Tax evasion and avoidance in Iran stood at more than 400 trillion rials ($2.81 billion) or 35% of the total tax revenues of the government.

Massive Subsidies to Blame

One major factor contributing to the rise in smuggling of goods out of Iran lately has been the allocation of foreign currency by the government to imports of what it calls "essential goods".

Iranian sugar cubes, tomato paste, rice, fish, eggs and many other products have been popping up in shops in neighboring countries.

A report by the Persian daily Iran in January said countries that were once the sources of smuggled goods to Iran are now the destinations of large volumes of products, most of which was imported to Iran in the first place.

"Iraqis are buying rice, fish and chicken in large quantities to the point that the increasing scarcity of some of these products has led to inflationary pressure inside Iran," the report reads.

"The 4,200-rial dollar is the deadly poison for the economy," the secretary of Iran Food Wholesalers Union, Qasem Ali-Hassani, said.

“We have time after time asked the government to stop the allocation of cheap foreign currency, but the government prefers this policy to control prices.”

The government needs to discontinue the allotment of cheap foreign currency instead of patrolling the borders, an informed source at Iran Chamber of Guilds, who wished to remain anonymous, told the Persian daily.

“The resources saved can be spent on low-income households’ subsidies. The current policy would only promote outbound smuggling,” he said, stressing that smuggling would not go away unless the prices become real.

Hefty fuel subsidy in Iran is the main reason for its smuggling across borders into neighboring countries where prices are considerably cheaper.