The Phenomenon of Smuggling and the Economy of Iran

Smuggling goods into and out of the country is an economic phenomenon that Iranian citizens experience in various forms. This is not surprising given the extensive level of smuggling activities in Iran. According to the head of the Central Headquarters for Combating Smuggling of Goods and Currency in Iran, the size of smuggling in Iran is estimated to be between 20 to 25 billion dollars, or nearly 30 percent of the country's non-oil trade exchanges. However, smuggling statistics are often based on estimates and conjectures, and like the tip of an iceberg, only the visible part can be examined and observed. Habibollah Haghighi, the head of the Headquarters for Combating Smuggling of Goods and Currency, recently stated: "In 2013, about 50 billion dollars worth of goods were officially imported into the country, while in the same year, 25 billion dollars worth of smuggled goods were also imported, meaning that 50 percent of the country's official imports that year were smuggled goods." Despite the illegal nature of smuggling activities and the various risks and legal repercussions involved, Iranian bureaucratic and regulatory institutions have been unable to effectively prevent it. Although smuggling can be experienced in various forms in other countries, one of the characteristics of smuggling in Iran may be its extent and the involvement of certain institutions and government officials in it. It can be claimed that a significant portion of smuggling is carried out by circles that have the ability to use their political influence to create a safe margin. Given the numerous security, military, law enforcement, and paramilitary organizations that have established a convoluted security network over economic activities in Iran, smuggling goods without the support and backing of some officials within this extensive network is highly unlikely. From a legal and customs perspective, smuggling refers to the illegal transfer of goods without paying customs duties and commercial profits. The main instances of smuggling in current Iran include the smuggling of drugs, pharmaceuticals, tobacco, national artifacts and antiques, currency smuggling, and especially various essential goods such as petroleum products or wheat and flour destined for export. Smuggling is part of the informal and black economy and naturally has economic consequences on some of the economic variables of the country. The consequences of smuggling weaken domestic industrial production and create tension in domestic market competition, reduce job opportunities and national per capita production, as well as national per capita income, disrupt macroeconomic policies, reduce government revenues, economic growth, and income distribution, leading to this phenomenon being of interest to policymakers, investors, businesses, and economists. The most fundamental reason for smuggling transactions is their profitability compared to legal and official transactions. Although in smuggling transactions, the cost of losing goods during entry, using more expensive entry and exit routes, and potential bribery increases the cost compared to official and legal transactions, because legal transactions are subject to high tariffs and taxes, smuggling goods is usually more profitable than legal transactions. Therefore, the high profitability ratio of smuggling goods is one of the most important reasons for the inclination towards such activities. However, the profits obtained from smuggling must be high enough to not only cover the costs and risks of crimes and penalties but also to create motivation in individuals. High customs tariffs and non-compliance with customs laws, as well as the lack of customs oversight over the entry and exit of goods at borders, encourage smuggling into the country. Conversely, one of the main factors for smuggling out of the country, especially the smuggling of petroleum products, is the lower prices inside the borders compared to international prices. The inability of the Iranian bureaucracy to manage smuggling. Although activities related to smuggling have always been subject to legal actions and even repressive measures, such actions have not been effective, and according to officials, only 10 to 15 percent of smuggled goods are discovered. Ahmadizadeh, the secretary of the provincial commission for combating smuggling of goods and currency, stated in an interview that experience has shown that combating smuggling has not yielded results, and the main work of the police and the judiciary on this issue is not very valuable. This official added that: "Seizures of smuggled goods have increased, but in our opinion and the evaluation of experts, these seizures only account for 10 to 15 percent of smuggling, and the rest enters the consumer market." The governor of Tehran also recently pointed out that 60 percent of smuggled goods enter Tehran province, stating: "Statistics show that the discovery of smuggled goods in the province is very low." Regarding ineffective anti-smuggling policies, Ali Maqooli, the deputy of the Customs Import Center, stated a few years ago that the tariff on mobile phones was set at 60 percent, and after that, all mobile phones in the country became smuggled, and now over 90 percent of mobile phone imports are smuggled, which has strengthened smugglers. This indicates that the Iranian bureaucracy is unable to manage the issue of smuggling goods into Iran and, on the contrary, exacerbates it. It should also be noted that part of the smuggling process is related to the transfer of fuel outside Iran. The low price of petroleum derivatives, which are considered subsidized goods compared to neighboring countries, has led to the encouragement and intensification of smuggling these goods abroad. In other words, the subsidies paid by the government, which should ideally be limited to Iranian citizens, have also included consumers from other countries. Simultaneously, however, the government, in response to the increasing demand for gasoline within the country, has allocated part of the national budget to subsidize the import of this petroleum product. There is evidence that part of this imported gasoline, due to its low price, is also involved in smuggling networks to neighboring countries. Such claims can also be generalized to other essential goods and foodstuffs such as wheat and flour. In a sense, it can be said that if part of the government's budget deficit is a result of not paying tariffs and taxes on smuggling goods into Iran, another part is also a consequence of the waste of subsidies due to this smuggling of goods abroad. Thus, a significant portion of the flow of goods and financial capital passes through the Iranian economic system and has considerable impacts but is unmanageable. This is one of the reasons for the inefficiency of policymaking and optimal management of the Iranian economy.