How Does Smuggling Affect The Economy?

In this blog, we look at how smuggling can affect a country’s economy. The act of smuggling has several consequences, all of which can have disastrous wider effects – many of which will be detailed below. Firstly, we look at the mercantilism and its definition.

What is mercantilism?

Mercantilism is an economic theory that was developed between 16th – 18th century whereby the government should be in control of the economy and that the nation’s wealth is based on selling more than it buys.

Smuggling is the illegal transportation of goods across an international border. Often, these goods are illegal or contraband and can include objects, information and even people. Even if the objects in question are not illegal, they will more than likely have tariff rates that are so high and the incentive to access them illegally is great.

Ways that smuggling can affect mercantilism

Loss of revenue

Because smuggling isn’t regulated and outside of the government’s tax net which can lead to a loss of revenue.

Promotes crime

Smuggling generates huge profits – most of which goes back to the crime syndicate to fun more illegal activity. This creates a rise in crime and can affect tourism, amongst other things.

Evades duties and taxes

The evasion of tax and duties on smuggled goods inevitably mean a loss of tax revenue for the government – which eventually reduces their ability to develop and progress as a state or country.

Hurts domestic industry

While legitimate businesses pay a series of taxes on the goods they produce, smuggling bypasses these taxes which slowly destroys the local economy.

Creates instability

When smuggling overtakes a functioning economy, it creates instability. This then discourages business and investments from coming into the area.

For these reasons, and others besides, smuggling is highly illegal and results in fines and lengthy prison sentences.

If you’ve been involved in smuggling, or face criminal charges relating to smuggling, it’s important to acquire the assistance of a lawyer. Contact DBT on 0207 416 6745 for help and advice.