Nepal | July 19, 2019

Under-invoicing in carpet export to China costing Nepal dear

Pushpa Raj Acharya

Kathmandu, March 20

It seems that the country’s export is largely under-reported as the Trade and Export Promotion Centre has revealed that there is rampant under-invoicing in export of carpets to China.

Based on a study on the customs declaration and the minimum cost of production of the product, the TEPC has found that there has been massive under-invoicing in the export of carpets to the northern neighbour.

It costs at least $100 to manufacture one square metre of carpet. However, traders have been declaring the cost of each square metre of carpet to be just $26 at the customs points while exporting the product to China, according to Sarad Bickram Rana, executive director of TEPC. “As a result, the government has been losing income tax and it has subsequently helped the hundi system to flourish,” he stated. “It is also encouraging under-invoicing in imports.”

Due to the slow growth of exports, the government has been facilitating exporters to boost exports. However, businesses exporting carpets to China have been creating multiple problems in the economy through false declaration of cost of goods.

The highest declaration on export of carpet to third countries has been recorded at $600 per square metre and the lowest at $26, according to TEPC.

The country exported around 100,000 square metres of carpet to China in the last fiscal and 56,000 square metres in the first seven months of this fiscal. TEPC suspects misappropriation of around Rs 1.3 billion in the last fiscal and at least Rs 415 million in the first seven months of this fiscal through false declaration at the customs points.

“That misappropriated money comes to Nepal either through hundi or is utilised for under-invoicing of goods during imports,” said Rana.

The Ministry of Finance had introduced a floor price of $50 per square metre to export carpets from Nepal some two decades back. The government back then had introduced the policy measure to control under-invoicing in exports. However, the policy was withdrawn later as traders repeatedly complained that the floor price was a barrier.

Rana of TEPC has suggested that exporters who declare export price over a certain benchmark price — like $100 or $150 — be provided certain incentive to encourage traders to declare the actual price of export products.

Carpet is the major export commodity of the country. As per TEPC, the country exported 327,459 square metres of carpet worth Rs 3.82 billion in the first seven months of this fiscal.

However, despite the increase in quantity, export income has declined in this fiscal. The country had earned Rs 4.34 billion from export of 293,088 square metres of carpet in the corresponding period of the previous fiscal.

Immediate past president of Nepal Carpet Exporters Association, Anup Bahadur Malla, said the export quantity and earnings figures clearly showed that there was something amiss in actual declaration of export goods and the country was losing foreign currency earnings as well as tax revenue.

Rampant under-invoicing has harmed the government’s revenue as exporters file income tax applicable on the declared export at the customs point and such money is used in under-invoicing during imports, where the government again loses revenue.

 

 


A version of this article appears in print on March 21, 2018 of The Himalayan Times.


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