Curb under-invoicing of imports from China

Abhijit Bhattacharyya

Author and Columnist

THE news report — ‘Under-invoicing of Chinese imports under taxman’s lens; 32 traders get notice for suspected tax evasion of Rs 16,000 crore’ (published on November 14) — is important because India’s foreign trade-origin current account deficit could soon reach a disconcertingly unacceptable level, if not controlled urgently. Indeed, there exist several connected factors that need to be addressed in unison, and not in a compartmentalised way.

Today, however, one would like to focus on one of the most worrying issues of reported ‘under-invoicing’ inflicted by an influential section of unscrupulous Indian traders/importers in league with an equally money-at-any-cost act of ‘cunning’ Chinese exporters.

Under-invoicing happens when the price of an item on an invoice is less than the price paid. An invoice is an itemised list of goods or services furnished by a seller to a buyer, usually specifying the price and terms of sale; it’s a bill of costs. In trade practice, the invoice is a recorded description of the quantity and value of the transacted goods pertaining to import/export, issued by the exporter/seller to the importer/buyer of goods. Let’s assume that, going by the description, a commercially transacted item is sold by a Chinese seller/exporter for $10 per unit in Wuhan; but it is found to cost $5 at an Indian port of entry (Mumbai, Kolkata, Chennai or Kochi). That would be under-invoicing of $5 per unit, thereby leading to undervaluation and ultimately loss of tax because it’s imposed on the landed value of the goods. Hence, if the tax rate is 50 per cent on a particular item, 100 per cent under-invoicing/undervaluation would result in 100 per cent loss of tax to the state exchequer.

And here starts the cat-and-mouse game ceaselessly played between an unscrupulous section of India’s (much-vaunted private sector) traders/importers and exporters and the state establishment (constantly targeted for inefficiency). The worst part is that the Chinese are playing the game with glee as they are keen to make money by issuing under-invoiced documents to a section of profiteering Indian importers/buyers to present it to the authorities at Indian ports and airports.

Thus, a probe to prove that a particular imported consignment is under-invoiced and hence undervalued, thereby resulting in loss of state revenue, is unlikely to reach any conclusion in a majority of the cases because mere suspicion on the part of the importing country’s officials, followed by orders to pay tax on “under-invoiced/undervalued” goods, won’t pass the scrutiny of the judiciary and the law of the land.

Indeed, prima facie, the goods appear to be under-invoiced and undervalued. But where’s the proof? Could you make a case on the basis of authentic documents originating from the country of import? Do you have direct or circumstantial evidence pertaining to the allegations which you have brought forward before the court? Hence, the benefit of the doubt goes to Indian importer/buyer of Chinese-origin goods and the case is dismissed. This happens in most of the cases.

Frankly speaking, the entire gamut of the legal procedure of the present times needs an urgent relook because China, being the monopolistic manufacturer of most goods, is in an unassailable position to manipulate the listed price in whatsoever way it feels like. That makes it well-nigh impossible for an Indian law enforcement agency to make a correct assessment, valuation and a foolproof chargesheet. One can challenge or prove or disprove a case in an environment of competition, but how does one deal with a monopolistic exporter, patronised by Indian traders? All in the name of being ‘cheaper’ and having an ‘affordable’ price.

How about importing a product for $5 and selling it during Diwali for

Rs 5,000! That’s business and the globalised way of trade and commerce, even if you are the loser.

Quoting from a Global Financial Integrity think tank report, “India lost a staggering $13 billion (over Rs 90,000 crore) to trade under/mis-invoicing in 2019, and that most of it relates to imports from China.” Unsurprisingly, the position India is in today, there’s every possibility of Delhi-Beijing bilateral trade deficit touching minus $100 billion for the former in the near future.

The situation is becoming more complicated by the day because of increasing dependence of an influential section of traders on Chinese-origin consumer goods, which have a large customer base in the Indian hinterland where the preference for fancy consumer items and ‘affordability’ have exhausted all alternatives. Also, thanks to successive Indian governments’ ‘free market’ thinking and its cheerleaders at the turn of the 20th century, communist China has grown into a draconian exporter to India’s captive market of over one billion consumers.

Indeed, the agenda of the Communist Party of China (CPC) creates dismal prospects for India, soon to be the most populous country of the world. India has to be fast to decouple herself from the CPC through various ways. Simply, because today’s CPC-state is more than a rapacious avatar of western imperialism of the past.

China exemplifies the classic case of “triumph of mercantilism”. Every aspect of the economy is state-controlled, concentrated in the hands of a monolith called the general secretary of the CPC. The core of ‘mercantilism’ is export. Growth, through prosperity, and cash flow from exports is the way. Thus, from Berlin to Beijing today, and the British imperialism of yesteryear, surplus export (and controlled import) led to a prosperous foundation at home and ruthless measures for export growth abroad.

Contextually, however, India presents a glaring contrast. Her exports invariably are a fraction of the gargantuan import bill, leading to a perennial current account deficit. On top comes the unstable, depreciating and fluctuating currency, which inevitably sends her deficit skyrocketing. Hence, exporters prefer delayed ‘remittance’, knowing well that rupee depreciation will make their profit fatter, and importers too fix and mix up to ensure ‘under-invoicing/undervaluation’, knowing very well that suspicion of the Indian state is unlikely to result in punishment in most of the cases. Result? Loss and more loss to the Indian exchequer.

Unbridled import is not curbed owing to the West-controlled World Trade Organisation and exports are impacted because of lack of quality and competitive prices. So much for the economics of globalisation for India. Deficit is inflicting damage on development. 

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