Tax reform and compliance making a difference to India’s trade-based financial crime

Early figures suggest that India’s recently introduced general service tax (GST), alongside tougher compliance at border posts, has significantly reduced trade-based financial crimes employing over- and under-invoicing typologies.

At some border-crossings the difference is already obvious, and hopes are high that year-on-year trade figures, when they are available, will show that the once widespread manipulation of invoices has at least been substantially curtailed.

Compliant traders

Change is evident at India’s busy Petrapole land border with Bangladesh, through which 35 per cent of the two countries’ US$7.5 billion bilateral trade flows.

In January, a three-day strike by customs officials, purportedly called in protest against the procedural delays caused by GST requirements, is widely believed by traders to really have been prompted by customs officials disgruntled by traders complying with the new tax rules.

New rules

“Barely 10 per cent transactions carried out through this gate had clean papers and the gate officials feasted on the rest. The rules of the game changed after the introduction of GST in July 2017,” one Indian exporter told local media.

“As majority of the trade became compliant, the gate officials missed their pound of flesh and resorted to delaying tactics,” he added.

Under- and over-invoicing

The GST deters Indian exporters from under-invoicing to help their trade partners in Bangladesh dodge high import duty because with the new tax, the exporter would forfeit valuable input tax credits by under-declaring the value of goods.

Over-invoicing was rampant in items eligible for duty drawback benefits as they were calculated on the shipment value. Under GST however, these benefits have been pared to the bone – while tea used to attract one per cent drawback, it now attracts just 0.15 per cent.



Categories: Trade Based Financial crimes News