🚨 The Billion Dollar India-China Scam
A major scam is causing a mismatch between China's export numbers and India's import numbers. This is causing our government to lose billions of dollars each year. How? ReadOn!
Team ReadOn has uncovered a profound truth: Everything in life is about perspective.Â
No, we aren't going all philosophical on you, this is still about business. Wondering how?Â
For instance, India thinks that we imported only $79.16 billion worth of goods from China.Â
But China says that it exported $89.99 billion worth of goods to India.Â
That's more than $10 billion worth of mismatch in accounts! How did this happen and where did billions of dollars disappear?Â
ReadOn!
😱 An Ancient Scam Taking A New Form
This is not the first time that India and China have reported a mismatch in imports and exports.Â
This amount has been increasing year by year (from a $6 billion gap in 2019 to a gap of $10 billion in 2021).Â
But how can this happen?Â
Well, there are several ways this could logically take place.Â
First, a simple timing mismatch.
China records the exports as soon as they are dispatched.
But India records these imports much later when they finally come home. This delay in recording the data could lead to some mismatch.Â
Another reason could be trade on the high seas.Â
You see, very often traders buy stuff from China but don't bring it back to India. They find another buyer on the high seas and sell it to them directly on the sea.Â
This not only saves time but also money as traders no longer have to pay any import duty.Â
But, these are simple, genuine mismatches. The intentional, scam-version of this is under invoicing of imported material.Â
Huh?Â
Suppose you import two iPhones from China. You'll have to pay a hefty import duty on the phones you bought. Let's assume this import duty is 20% (it differs from product to product).Â
So, the iPhones that cost Rs. 2 lakhs (assume the price of one iPhone is Rs. 1 lakh) will actually cost you Rs. 2,00,000 + Rs. 40,000 (20% of Rs. 2 lakhs).Â
Total bill= Rs. 2,40,000.
Now, instead of claiming you bought two iPhones, you say you just bought one.Â
Your import duty goes down by Rs. 20,000.
Now, you take this further.Â
You claim that you bought just one Xiaomi phone worth Rs. 30,000.
Your effective import duty now is just Rs. 6,000.
Voila, you've managed to save Rs. 34,000! Just by lying!
Well, that's exactly what a lot of importers and exporters have been doing.Â
And the government has discovered this by chance.Â
Yes, a chance search at a Kolkata port revealed that a shipment which claimed it was carrying Rs. 3.8 lakhs worth of HDMI cables actually had phones and laptops worth Rs. 64 crores!Â
Since then, the Central Board of Indirect Taxes and Customs has been looking for companies that execute such fraud trades.Â
They've found some. And they have also sent notices to around 40 importers for Rs. 25,000 crores worth of under invoicing.Â
And all of this is possible thanks to the hawala system.
Hawala transactions are basically a way of money laundering. Though this was initially a remittance system, it has now become a way to avoid taxes.Â
Let's see how.
Say Importer A from India orders stuff worth Rs. 20 crores but asks for an invoice of only Rs. 2 crores. Exporter C from China agrees.Â
A pays Rs. 2 crores legally to C.Â
The rest is settled through the Hawala system without any movement of money. A contacts hawaladar B (one who facilitates hawala transactions) and gives him Rs. 18 crores in cash. A gets a passcode in return and sends it to C. C then shows this passcode to the Chinese hawaladar and gets the money from them.Â
The Hawaldars get a commission from this.Â
So, everyone is happy except…
The government. So, it is trying tooth and nail to solve this problem.Â
But so far agencies have not been able to make any substantial progress in tracking and stopping hawala trading.Â
And things are only getting worse as we try to avoid imports from China.Â
Yes, high tariffs on Chinese imports is only convincing Chinese exporters and Indian importers to under invoice goods.Â
This mis-invoicing cost us $13 billion in tax revenue (5.5% of total tax collection) in 2016.
What can we do to stop this?Â
Well, one way would be to completely stop imports from China. But that's not possible.
Because even if we stop importing products from China, we will still need to import raw materials like lithium from the country.Â
Sure, we can import them from other countries but that would increase our costs.Â
China always seems to find a way into our borders.Â
When we increased tariffs on steel imports from China, it started sneaking inferior quality into India through Indonesia.Â
So, escaping China will be a task.Â
But can we somehow stop hawala transactions?Â
âš¡In a line: An ancient ingenious scam is costing India billions of dollars in revenue.
💡Quick question: What measures can we take to reduce such scams?
Share this with your friends via WhatsApp or Twitter and help them grow!
See you tomorrow :)
If you are coming here for the very first time: Don’t forget to join us on WhatsApp to get daily updates! 👇