Structural nodes of the economy from the point of view of 80 producers

Many people in the country want to create a business, but many obstacles in front of them weaken their determination to continue. The importance of this matter is such that maintaining the administrative system governing the country’s business environment, even with the lifting of sanctions, will still be a serious obstacle to the prosperity of Iran’s economy. The ease of the business environment is an important criterion for monitoring the administrative and economic situation in the country because a suitable business environment can encourage entrepreneurs and encourage foreign investors to inject capital into the country.

This report is the result of narrating the problems of 80 domestic producers, some of which are directly presented in the form of “narratives” in each section after categorizing them. It should be noted that the contents expressed in this report are only the expression of problems from the language of the producers and are not included in its macroeconomic effects.

The need to facilitate the issuance of business licenses
Licensing is a governance tool to control processes. Any kind of friction and improper use of this display tool is an opaque and complex picture of the future of any activity and will bring disappointment and withdrawal of the entrepreneur and investor from the market.

Comparing the difficulty of this path with the ease of generating income in non-productive activities leads any innovative idea to non-productive activities and causes the country’s high amount of liquidity to be directed to speculative activities instead of production.

Entering many businesses such as advanced and integrated agriculture, automobile manufacturing, construction of hospitals and clinics, stock brokerage, power plant development and domestic electricity supply and export to abroad and extraction from mines has become difficult or impossible due to the difficulties of obtaining permits. Entering any of these areas can be effective in establishing balance in their market and increasing household welfare.

Narrative 1:
An economic activist planned to establish a permanent craft market to attract tourists in Damavand city. In this regard, a three-month temporary license was granted to him to set up. It was also said that he will be fully supported, but after three months, with the change in the decree of the cultural heritage officer of the region, the licensing process faced a problem and the order to demolish the prepared building was also issued; Even though the investment has been made up to this stage, it was done by the order of the previous authorities. The main cause of the problem was the interpretability of the laws in terms of the license and the conflict of interests of the relevant authorities in the construction of such a building.

The problem of contract premiums
In order to receive insurance premiums for workers who work in inaccessible centers, the legislator has provided Article 41 in the Social Security Law. According to this article, the Social Security Organization has determined percentages for contractor contracts, based on which percentages it receives insurance premiums. Determining the percentage and compiling related circulars will be the responsibility of the Social Security Organization. The amount of the insurance premium in this case, which is called “contract insurance premium” is much higher than the conventional insurance premium.

The open hand of the social security organization in taking the contract insurance premiums has become a factor to compensate for the income deficit of this organization. This action is done at the cost of increasing the pressure on the business environment. Also, the determination of contract insurance premium coefficients by the insurance agent has opened the way for the application of personal opinions and as a result, the occurrence of administrative corruption in the executive process.

Due to the process that the social security organization has to demand, contract insurance premiums have become a factor that both the worker and the employer have suffered from.Taking this insurance premium will destroy the motivation of social security for comprehensive inspection and detection of violations. In this format, the maximum insurance premium obtainable from the employer is received and further inspection will only lead to the discovery of uninsured people and increase the costs.

Due to the process that the social security organization has to demand, contract insurance premiums have become a factor that both the worker and the employer have suffered from. Despite this, the social security organization considers the contract premium as a stable source of income and compensates for its income deficit. However, a large number of workers are not insured against contract premiums and are not entitled to social services.

The complexity of the rules related to various types of insurances also leads to financial pressures on novice producers. This pressure is due to not being familiar with the laws and can make producers face serious crimes from the very beginning. The result of this spending is the destruction of the business at the very beginning.

Narrative 2:
A software company that was established in 1378 was fined 320 million Tomans in the 10-year audit of the company in 1388; Even though this company has continuously paid its insurance premiums to social security during the last 10 years. In these cases, insurance experts use special notes such as contract premiums to fine companies in order to compensate for their financial losses. In this way, they have the tools to block the company’s account. The process of complaining to experts and the social security organization is also time-consuming and very expensive, so that people are forced to pay and in practice, they are deprived of the opportunity to get their rights.

High taxes
Applying value added tax on economic enterprises causes a decrease in the company’s sales; It also reduces the profit of the company and the owners of the company are forced to demand lower prices to compensate for this tax for the buyer of their goods. For this reason, the value-added tax increases the amount of tax, which in some cases has a direct effect on reducing the profits of companies.

The underground sector of the economy, which has exempted itself from paying taxes, transfers all its tax burden to the transparent sector. In fact, the official sector pays some of its income as taxes and does not receive adequate public services in return, thus losing its competitive power in the market.

The strange thing about Iran’s tax system is the injustice in the distribution of taxes paid by different sectors of the economy, which, along with the large figures of tax evasion, has turned Iran’s tax system into an unfair and ineffective system. The tax share of production is more than four times the share of the underground sector in the economy. The calculation method is also in this way that the ratio of taxes to the average GDP of the world is 25% and in Iran it is less than 10%.

The tax share of production is more than four times the share of the underground sector in the economy. The calculation method is also in this way that the ratio of taxes to the average GDP of the world is 25% and in Iran it is less than 10%Narrative 3:
In 2011, one of the producers completed his tax return by mistake. So, he referred to this organization to correct the mistake, but the organization refused to correct the submitted form. In this regard, the producer spent nearly three years to amend the declaration while collecting documents related to his property. In the meantime, the non-payment penalty was continuously added to the principal amount. Finally, he had to close his production and work in a company.

Lack of supervision of the standard of imported goods
The frequency and multiplicity of customs tariffs increases the possibility of applying taste in the allocation of tariffs to goods. Since the country’s customs laboratories do not have the possibility to identify minor differences in tariffs, the measurement error or violation in determining the tariff amount of goods increases. On the other hand, the governance tool in regulating the entry of low-quality goods is also reduced and the possibility of entry of lower-quality goods is also possible.

On the other hand, the domestic producer is obliged to comply with the standards according to the laws in order to obtain the necessary permits when establishing the workshop and maintaining its production. In this situation, the production price for the domestic product is higher than the imported product, and in practice, the domestic producer is deprived of the opportunity to compete.

Narrative 4:
One of the helmet manufacturers faced the problem of supplying products at a lower price than his production in 2019. He thought that the import of Chinese goods with low quality and low price was the cause of his company’s losses. According to him, the importers mostly imported low-quality goods into the country, and in the meantime, the customs officers did not properly and fully monitor this issue. In the meantime, the ban on the production of carburetor motorcycles suddenly shocked the market and the production of helmets went bankrupt. At present, this workshop is still working hard after most of its workers have been retrenched.

Lack of predictability and stability in export laws
Starting a productive activity and starting a new business requires having a clear and transparent picture of the future state of the economy. Business operators must be able to predict economic events in the long term. Otherwise, the desire for long-term activity decreases; As a result, people are driven to short-term and generally unproductive activities; Therefore, predictability is important for production boom.

Acquiring customers in the market of third countries and gaining their trust is a very difficult task, and the biggest capital of businessmen are customers in third countries. However, by making momentary decisions and frequently changing export laws, the governments make Iranian businessmen unable to keep their contracts and as a result lose their customers and trust in export target countries.

Predictability is defined in terms of the relative clarity of the business future for the economic operator. It should be kept in mind that predictability does not mean stability, rather stability is a special state of forecasting conditions. In other words, it is possible to have an unstable but predictable economy.

Narrative 5:
One of the biscuit producers who used to export their products in full, in 2016, after the price of basic goods increased, suddenly faced a ban on the export of all dairy products. Following this ban, the producer lost all of his export markets. After this incident, he had to close the factory in order to preserve his capital, and after that all the workers became unemployed.

By making momentary decisions and frequently changing the export laws, the governments make Iranian businessmen unable to stay committed to their contracts and as a result lose their customers and trust in export target countries.Exchange rate instability
Multi-rate currency brings a lot of damage to traders because the difference in currency prices causes the balance of import and export profits to be disrupted. In multi-rate systems, exporters are forced to sell the currency resulting from their activities at a rate lower than the equilibrium rate (at the free market rate), which reduces the incentive for export development. In this situation, the import of goods ends up at very cheap nominal rates and the demand for imports increases.

The multi-rate currency system has adverse consequences in the allocation of economic resources of a country. The use of this system causes a difference between the prices of goods inside the country and international prices, which creates disturbances in macroeconomic decisions in the field of production, consumption and investment, and ultimately leads to inefficient allocation of resources and reverse smuggling.

Multi-rate currency systems are the basis for allocating resources to rent-seeking profits caused by the difference in exchange rates, and in this situation, a considerable part of the society’s power, instead of being spent on production and innovation, is spent on using the rents resulting from the difference in the prices of different currencies. .

Aspiring to reach the standard
Creating wealth and national development in countries with the help of innovative technologies is one of the necessities of the emergence of a knowledge-based economy. An important component in this path is the commercialization of innovative and advanced technologies, which is a prerequisite for the development and evolution of technology and the sale of knowledge-based products.
Standardization is a tool to improve the level of science and technology in the country and increases the competitiveness of active companies in the field of national and international markets. Standardization reduces the risk of using innovative products through the application of government requirements, such as clarifying minimum conditions (mandatory standards) for environmental, safety and health factors, and reveals the functional characteristics, compatibility and compliance of these innovative products with standards. In this way, the reasons for gaining the trust of buyers and consumers are provided and trade is facilitated.

Multi-rate currency systems are the basis for allocating resources for the profit of rent-seeking caused by the difference in exchange rates.Currently, there are 6,514 knowledge-based companies and more than 10,000 technology units. Knowledge-based companies and technology units need to obtain standards and licenses to be present in national and international markets; Therefore, it is necessary to examine the challenges of the standardization system of knowledge-based and technological products.

But now the technology to grant licenses to knowledge-based products is not available in the country. This problem has caused a problem in the demand for products of high-tech manufacturers. These companies are forced to go abroad to obtain a license, and this will increase the cost of products and foreign exchange for the country.[۷].

Narrative 6:
One of the medical graduates from Tehran’s top universities planned to launch a bone powder production line from cow and camel bone marrow and collagen membrane in the country in 2017. In the meantime, governors were asked from him. In some of these cases, the laboratory under observation had international standards, but from the point of view of the Medical Equipment Organization, these standards were not sufficient. On the other hand, the Medical Equipment Organization did not express its standards either. In the producer’s opinion, it has not been formulated in these cases based on the governorship. Such problems completely discourage the manufacturers of technological goods.

* Economic researcher