Trade mis-invoicing cost India $13 bn in tax revenues in 2016, says report

Current Affairs

India is estimated to have lost $13 billion potential tax revenue in 2016, equivalent to a staggering 5.5 per cent of total government revenue collections back then, due to simple trade invoicing.
The findings, part of a report by Washington, DC-based think tank Global Financial Integrity (GFI), are set to worry policymakers who have increasingly tried to crack down on fraudulent tax practices.
Trade misinvoicing involves both exporters and importers deliberately misreporting the value, quantity, or nature of goods or services in a commercial transaction and is treated as one of the most common forms of tax fraud by the government.Of the lost revenue, approximately $4 billion was due to deliberate misinvoicing of exports, while $9 billion was due to the same being done for imports.
The lost revenue on the import side can be further broken down by uncollected value-added tax worth $3.4 billion, uncollected Customs duties costing $2 billion, and uncollected corporate income-tax worth $3.6 billion, GFI said.
Released on Monday, the report also pointed out this trade gap for misinvoiced goods may be as high as $74 billion, equalling 12 per cent of the country’s total trade of $617 billion in the same year.
A report by the UN had earlier warned New Delhi that valuable earnings, mostly in commodity imports, were regularly vanishing and had suggested updating trade policy to counter the issue.

India should also encourage other countries to adopt a beneficial ownership registry, to fully implement financial action task force’s anti-money laundering recommendations, country-by-country reporting, tax information exchange initiatives and the Addis Tax Initiative, GFI said.Back in 2017, a similar report by GFI pegged the total illicit inflows into India between 2005 and 2014 at $770 billion.