ISLAMIC REPUBLIC OF IRAN: Estimations on Smuggling of Goods


It should be mentioned that in order to include the Non Observed Economy (NOE) in National Accounts, at the present time some estimations by applying the Flow Commodity Approach for the Supply and Use of goods and services (official, non-official, and smuggling) are being carried out. We have benefited to establish the balance between the Demand and Supply Aggregates for this reason, so a major part of informal activities has been covered. An estimation of smuggling and informal statistics in import and export also exists in External Balance of Payments (BOP) which is applied to the National Accounts Statistics. It should be noted that in the surveys of Urban and Rural Households income and expenditure, the amount of households’ expenditures in informal sectors such as Hotel and Restaurants, camp residency expenses, and professional services payments are now being collected from households and applied to the National Accounts Statistics. However, due to the lack of sufficient data and fundamental statistics for Non Observed (hidden) Economy, the accurate figure seems to be out of access. The precise estimation of this sector requires performing a number of surveys both for the households and small establishments belonging to households. To change from 1993 SNA to 2008 SNA and also rebase to 2016(1395), it’s expected to have an improvement in (NOE) estimation.

Estimations on Smuggling of Goods in Iran

The value and volume of contraband smuggled into and out of country are estimated by "Iran Headquarters for Combating the Smuggling of Commodities and Foreign Exchange", the body responsible for the task of tackling commodity smuggling1. The information presented in this report is based on documents submitted by the mentioned headquarters.

As to value and volume of goods smuggled into and out of country, it is to be mentioned that data on smuggled imports and exports are included under the "goods account" entry in the Balance of Payments (BOP) table, as an adjustment on external sector data.

Scope, Methodology, Compilation Practices, and Data Sources

The list of goods under illegal imports includes 16 items (comprising authorized goods2 and authorized conditional goods3) and 3 prohibited (banned) items4. Items like tea, rice, sugar, vegetable oil, chocolate, textile and apparel, footwear, and home appliances are among goods with high attractiveness to smugglers for illegal importing. The authorized conditional group of goods mainly consists of items like cosmetics and hygienic products, cigarettes, toys, etc. Prohibited items include items such as narcotics and liquors. The items in illegal export with high appeal are mostly the subsidized goods such as fuels, pharmaceuticals, and detergents.

There are various methods for estimation and valuation of the amount of illegal exports and imports. These are the gap analysis of export and import of earmarked items based on total supply and use of goods, the gap in traded goods statistics in importing and country of origin database (DOTS), and the application of econometric models. However, the conventional method, most applicable in light of limited access and restrictions of data, is the gap analysis approach between the value of supply and use for authorized goods and discovery rate approach for the banned products.

The estimation of illegal imports for authorized and authorized conditional items is based on total supply of selected goods as the sum of total domestic production and the data on official imports. The data related to domestic production of selected goods are derived from manufacturing industry surveys which are conducted and published annually by the CBI and SCI. The data on official imports of the selected goods are collected from the Customs office. The information and data on use and consumption of the related items are also compiled from results of SCI's statistical surveys on household consumption and expenditure. At the end, the difference between the total supply (domestic production plus imports) and the total use (domestic consumption and exports) for the specified items provides an estimate for the value of smuggled goods. For the items whose production is prohibited, the estimate of the smuggling is arrived at by the percentage of smuggled goods discovery rate. The estimation of smuggled goods out of country (export smuggling) is just similar to estimation of import smuggling for authorized and authorized conditional items (the gap between total use and total supply).

Linkages Across Statistical Domains

As the "current account" entries on the BOP table are compatible with "global current account" entries on national accounts table, smuggled goods data in the "goods account" entries of the BOP table are also reflected in national accounts data. In other words, in estimating GDE using the expenditure approach, the amount of smuggled import is subtracted under the total value of imports as the smuggled value of imports is included under each component of GDE.

Current Challenges and Conclusion

The most important challenge faced by analysts for rendering more precise estimation on smuggling is the inaccessibility of accurate and up-to-date data on production, consumption, and inventory levels of authorized and authorized conditional goods. Meanwhile, regarding goods like narcotics and alcoholic beverages, analysts face further difficulty in getting access to data on production and consumption as the production, distribution, and consumption of these items are banned in Iran. Therefore, relevant estimates, as are mostly based on the smuggled goods discovery rate, would be further subject to bias and errors.

1Based on Paragraph 2 of the Headquarters' Approval released through its 122nd Meeting, Appendix to Letter No. 97-12294 dated January 15, 2019 registered under No. 97/383199 in the Classified Correspondence Division of Security Department on January 17, 2019, Iran Headquarters for Combating the Smuggling of Commodities and Foreign Exchange will be the body responsible for data collection and disclosure on smuggled goods.

2Authorized goods are items whose imports and exports are allowed upon observation of Customs office and the banking system of the country's regulations and are not subject to authorized process.

3Authorized conditional goods are items whose imports and exports are permitted not only upon observation of regulations set by the Customs office but are also subject to the acquirement of a license from one or more competent agencies.

4Prohibited goods are items whose imports and exports are totally banned by law.