India loses US$13 billion a year through misinvoicing

Global Financial Integrity (GFI) has launched what it describes as a comprehensive study regarding estimated revenue losses from trade misinvoicing in India during 2016.

When GFI estimated in 2016 the value illicit financial flows (IFFs) from India, the Indian authorities said the Washington-based research and lobby group’s estimates were exaggerated.

Revenue losses

In its latest report, GFI analysed the level of trade misinvoicing in India and estimated annual tax revenue losses to the Indian government totalling US$13 billion, or the equivalent of 5.5 per cent of the value of India’s total government revenue collection.

GFI also examined the key trading partner countries and imported products from which the highest amount of trade misinvoicing occurred and recommended policy solutions for India to reduce trade misinvoicing and increase total revenue.

 US$13 billion loss

Through discrepancies identified in India’s imports and exports found in the UN’s Comtrade database, GFI estimated a value gap of all misinvoiced imports and exports for India to be US$74 billion, or 12 per cent of India’s total trade of US$617 billion in 2016.

GFI says it then used data from India’s value-added tax rate in 2016 (14.5 per cent), customs duty tariffs as reported by the World Bank in 2016 and India’s tax rates on corporate profits in 2016, in order to estimate a total potential revenue loss in India in 2016 of US$13 billion.

Of the total US$13 billion, approximately US$4 billion was due to export misinvoicing and approximately US$9 billion was due to import misinvoicing GFI concluded.

Data challenge

In 2016 India’s Directorate of Revenue Intelligence described GFI’s estimates of illicit financial flows from India as “heavily exaggerated”.

GFI however argues that its estimate of US$505 billion outflows over a ten-year period was consistent with official data from India and Switzerland submitted to the International Monetary Fund. (Trade Based Financial Crime, 13 June 2016).

GFI’s report, India: Potential Revenue Losses Associated with Trade Misinvoicing, can be found here.


Categories: Trade Based Financial crimes News