'Trade Misinvoicing' cost India $13 billion: Report

The practice of ‘trade misinvoicing’ — a form of customs and/or tax fraud involving exporters and importers deliberately misreporting the value, quantity, or nature of goods or services in a commercial transaction — has cost India potential revenues losses worth US$13 billion in the year 2016, according to a new report released on Monday.

The report titled ‘India: Potential Revenue Losses Associated with Trade Misinvoicing’ was published by ‘Global Financial Integrity (GFI)’, a Washington DC-based think tank that focuses on promoting transparency measures in the international financial system.

According to GFI, the total potential loss of revenue loss amounting to US$13 billion, comprising of both misinvoiced imports and exports represents 5.5 percent of the value of India’s total government revenue collections in 2016. The portion of government revenue potentially lost due to import misinvoicing in 2016 was approximately US$9.0 billion.

“Nearly two-thirds of the imports that appear to be most at risk for some degree of potential revenues losses were from just one country – China, which was by far India’s largest source of imports in 2016,” says the report.

To arrive at these figures, GFI looked at bilateral trade statistics for the year 2016 (the most recent year for which sufficient data are available) as published by the United Nations (Comtrade). However, it clarifies that the estimates are conservative.

Trade misinvoicing is the most frequently utilized mechanism facilitating measurable illicit financial flows (IFFs), says GFI. Import or Export over-invoicing or under-invoicing can be used to shift money abroad or avoid custom duties or to reclaim VAT taxes and these practices results in large amounts of tax revenue losses.

The report also mentions some steps that India can take to tackle trade misinvoicing. For instance, it suggests scaling up the resources needed to strengthen regulatory enforcement, invoice audits and reviews and recommends raising penalties to set a better deterrence against violating India’s current legislation dealing with illegal misinvoicing.