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Iran's Free Economic Zones, Or The Seven-Headed Corruption Monster

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There are currently 3000 shell companies that have registered their headquarters in the country’s free economic zones for tax evasion purposes
There are currently 3000 shell companies that have registered their headquarters in the country’s free economic zones for tax evasion purposes

by Mahmoud Hakamian

 

12 April 2018-- There are currently 3000 shell companies that have registered their headquarters in the country’s free economic zones for tax evasion purposes, says Kamel Taghavinejad, the head of regime’s Tax Admission Organization.

In an earlier article titled “Dana’s special report on strange events in the country’s free economic zones”, state-run Rah-e-Dana website reports on “shell companies’ dominance in unmonitored areas” and “import of more than $2 billion worth of goods in one year through free zones without paying customs duties.” (State-run Rah-e-Dana website, July 21, 2016)

Also In an article titled “government’s insistence on expanding free economic zones despite tax violations”, Khamenei-linked Kayhan newspaper on February 6, 2017, writes “according to law, natural and legal persons involved in business activities in free economic zones are exempt from paying income and asset taxes for 20 years. This, in addition to exemption from value-added tax, has raised problems in the country’s free trade zones.”

“Such tax exemptions in free zones have actually made many mouths water, encouraging companies to establish their headquarters in such areas regardless of whether or not they’re operating there. In other words, although such companies are registered in free economic zones and enjoy their tax exemptions, they ‘re actually operating elsewhere”, the newspaper says.

Nonetheless, Rouhani’s adviser and Secretary of Supreme Council of Free Zones ‘Morteza Bank’ has rejected the reports as untrue, saying “there’s no such thing as tax evasions and operation of shell companies in the country’s free zones.” (State-run Fars news agency, December 31, 2017)

 

 

The fact, however, is that by having registered headquarters in free zones while operating elsewhere, the companies are not only exempt from filing their tax returns, but they even falsely claim that they’ve made losses. Moreover, regime’s government and parliament have officially acknowledged shell companies’ operation and tax violations in the country’s free zones, despite Rouhani’s adviser rejecting the case.

“Parliament’s Economic Committee has reached an agreement with the government to improve the law on how to run free trade and industrial zones so as to prevent smuggling goods, tax evasion, and operation of shell companies in these areas”, says had of regime Parliament’s Economic Committee. (regime’s Parliament news agency, January 15, 2018)

So, the question is, if the operation and tax violations of shell companies in the country’s free zones were out of the question, then what was the need for such laws to prevent tax evasion or operation of shell companies?

The corruption and violations in free zones is however not limited to operation of shell companies and their tax evasion, as the free zones are now among the country’s main centers of economic corruption and major hubs for smuggling goods.

Rahim Zarei, regime MP, points out that the value of smuggling activities in the country’s free zones is 150 times higher than the investment made in such areas, while Ahmad Mohammadi-Anaraki, also a regime MP, says that “unfortunately, the country’s free trade zones have turned into a hub for smuggling goods, despite their intended functioning.” (State-run Fars news agency, October 22, 2017)

In an interview with the Revolutionary Guards’ Fars news agency, secretary of regime parliament’s Economic Committee ‘Hossein Shahroudi’ points to the main reason for setting up free economic zones, saying “rather than being exporting hubs, the country’s free trade zones have now turned into major points for importing luxury and unnecessary products that not only fail to create jobs, but deliver a major blow to the country’s economy and production as well.

“The performance of our free zones over the past couple of years shows that such zones have not only failed to promote productive employment and boost exports, but they’ve also turned into a gateway for unmonitored imports of goods.” (State-run Fars news agency, September 27, 2017)

The free trade areas are also places for corruption and rentiering, in such a way that rentiers are now dominating these areas.

Commenting on rentiering activities, especially the ones carried out in free zones, Rouhani’s adviser Akbar Torkan says “as an instance, when the price of land in Kish Island was 30 million rials per square meter, government-owned lots were assigned at only four million rials per square meter, so that anyone lucky enough to acquire one had actually a winning ticket in hand. The profit one could make by buying the lot at four million per square meter and selling it at its much higher real price equaled 30 years of the salary you as a journalist receive, providing that you save all you receive. So, the person who was assigned the lot could make such a profit in the blink of an eye.” (State-run IRNA news agency, April 9, 2017)

These are just instances of the economic corruption underway in Iran’s free trade areas. Besides, that’s just a small part of an institutional corruption within the mullahs’ regime and its economic structure, a corruption that regime leader Ali Khameni refers to as a ‘seven-headed dragon’.

By setting up such free trade areas, the regime has actually provided its associates with jobs that enables them to move forward with their predatory activities, as excessive imports, smuggling and rentiering activities in such areas has cost the country a large part of its domestic production and millions of jobs.

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