Illicit financial outflows from India were estimated at $83 billion in 2013, third highest in the world after China and Russia, as money exited country...
Illicit financial outflows from India were estimated at $83 billion in 2013, third highest in the world after China and Russia, as money exited country through channels including fake invoicing of trade deals, Washington-based Global Financial Integrity (GFI) said on Wednesday.
The GFI report on cross-border money transfers for 10 years through 2013 pegged illicit financial outflows from India at $510 billion, double than the foreign direct investment inflows of $258 billion to the country during the period. Average trade misinvoicing outflows were 10.3% of India’s total trade in 2004-2013, according to GFI report.
Both export under-invoicing and import over-invoicing lead to an understatement of corporate profits. For example, the former undervalues export sales while the latter raises import costs, lowering corporate profit while shifting a significant portion abroad. There may be an added incentive to over-invoice imports as import taxes have declined due to trade-based globalisation.
GFI analysis shows that, of the $1 trillion in illicit flows leaving poor nations annually, over 83% was due to trade misinvoicing, resulting in massive tax evasion, which could have been used for poverty alleviation programmes.
The GFI study is based on data reported to the International Monetary Fund and covers money which it believes to be illegally earned, transferred or utilised.