The discrepancy in official trade figures between India and China has widened this year, fueled by an increase in under-invoicing and potential financial losses to the Indian exchequer, despite efforts by tax authorities to address the issue.
In the first 10 months of 2023, the difference between China’s reported exports to India and India’s reported imports from China surged by over 20 per cent, reaching USD 15.47 billion, compared to USD 12.75 billion in the same period last year. Under-invoicing, a practice where the stated value of imports is deliberately understated, aims to reduce the import tax burden.
Responding to a query from a media house, the Ministry of Commerce and Industry acknowledged the issue of under-invoicing by Indian importers. The Ministry reported that it had raised this concern with the Department of Revenue under the Ministry of Finance. In the January-November 2022 period, the Directorate of Revenue Intelligence (DRI) and Customs formations identified 896 cases of undervaluation. Investigations and recovery processes were underway for these cases.
The Ministry emphasised that measures were being taken to curb under-invoicing, including constant vigilance by DRI and Customs field formations, issuance of alerts and circulars, and appropriate legal action when such cases were detected.
The Commerce Ministry acknowledged the various reasons for differences in trade data, including under-invoicing by Indian importers, over-invoicing by Chinese exporters and the use of different INCO terms. The ministry emphasised that such disparities have existed even before the COVID-19 pandemic. The Global Financial Integrity report identified specific products at high risk for trade mis-invoicing, including edible fruits and nuts, sugars, cereals and vehicles, with estimated revenue losses of nearly USD 1.8 billion in 2016.
Illicit financial outflows from developing economies due to crime, corruption and tax evasion amount to approximately USD 1 trillion annually, surpassing foreign direct investment and foreign aid combined, according to the GFI report. Thorough investigations at a product level are deemed necessary to understand the root causes and implement corrective measures in response to the concerning trade discrepancies.
