India loses $13bn to trade misinvoicing, says GFI

India is said to have lost an estimated potential revenue of $13bn in 2016, equivalent to 5.5 percent of the value of India’s total government revenue collections in 2016.

According to a recent statement by the Global Financial Integrity (GFI), the huge loss was due to misinvoicing of India’s imports and exports across all trading partners.

The group estimates that the value of the trade gap for misinvoiced goods equals US$74 billion, or 12 percent of the country’s total trade of US$617 billion in 2016.

Of the total estimated potential lost revenue of US$13.0 billion, approximately US$4.0 billion was due to export misinvoicing and approximately US$9.0 billion was due to import misinvoicing.

The US$9.0 billion in import misinvoicing can be further broken down by uncollected VAT tax (US$3.4 billion), uncollected customs duties (US$2.0 billion), and uncollected corporate income tax (US$3.6 billion).

In the analysis made available to National Daily, in 2016, some of the Indian imports most at risk for high values of import under-invoicing were edible fruits and nuts, sugars, vehicles and cereals.

In 2016, some of the Indian imports most at risk for high values of import under-invoicing were from imports from the USA, Australia, South Africa and Ghana.

Looking at both high-risk commodities and high-risk trade partners in 2016, GFI found that under-invoiced imports of edible fruits and nuts from Ghana, mineral fuels from Australia and South Africa and electrical machinery from China were highlighted as potential high-level risks for revenue losses.

In 2016, almost two-thirds of Indian imports that appear to be most at risk for some degree of potential revenues losses are imports from just one country – China, which was by far India’s largest source of imports in 2016.

While a great deal of attention has been placed on the issue of profit shifting and abusive transfer pricing by multinational corporations, GFI believes revenue losses from trade misinvoicing are likely equivalent to those attributed to tax evasion and profit shifting by multinational corporations.

GFI urges India to adopt a public registry of beneficial ownership information on all legal entities and to consider using GFI’s online tool GFTrade, designed by GFI to build the capacity of customs authorities to better detect misinvoicing as transactions are occurring and take corrective steps in real time.

“India should also encourage other countries to adopt a beneficial ownership registry, to fully implement FATF’s anti-money laundering recommendations, country-by-country reporting, tax information exchange initiatives and the Addis Tax Initiative,” the report stated.