In a major blow to another Chinese Communist Party-backed firm, the Income Tax department raided the premises of Indian offices of Chinese Telecom Giant ZTE. The raid was conducted in its Gurgaon office as well as the homes of senior officers of the company. Searches were conducted at five premises, including the corporate office and residences of a foreign director, company secretary, account person and cash handler according to the officials.
According to the Finance ministry, an examination of import bill vis-à-vis sales bill showed that there was a gross profit of 30% being made by the company, while officially company was in ‘’huge’’ loss. “It is thus evident that losses are being booked by the company through bogus expenses in respect of the services provided by it,” the tax department officials said.
The officials added, “Few such recipients have been identified in whose case substantial expenses have been booked over the years. These entities have been found to be non-existent at their addresses.”
Income tax officials detected incriminating evidence against the CFO, CEO and other key persons indicating illegal payments to the telecom companies in their Whatsapp chats. Payment of commission to a person based in Australia for the purchase of shares in ZTE was also revealed. Officials also found evidence of unaccounted money running into several crores every year. More investigations are underway. Evidence related to some shell companies and tax evasions were also found.
The company was also involved in the large scale illegal export of medicines from India to China. Besides that, the company has also been allegedly involved in illegal currency exchange from Indian Rupees to China’s RMB. It is to be noted that the core business of the company is wireless, exchange, optical transmission, data telecommunications gear, telecommunications software, and mobile phones.
ZTE like other Chinese firms such as Huawei has a history of allegedly indulging in illegal activities in other countries. In March 2017, ZTE pleaded guilty to illegally exporting US technology to Iran and North Korea in violation of trade sanctions, and was fined a total of US$1.19 billion by the US Department of Commerce. It was the largest-ever US fine for export control violations. In April 2018, the US Department of Commerce banned US companies from providing exports to ZTE for seven years.
Recently, India has also taken strict action against illegal activities done by Chinese firms. The Modi government has banned many Chinese apps following the deadly clash between Indian and Chinese troops in Ladakh last year. Recently the government announced ban on Huawei and ZTE equipment trades in India. These raids by the Income Tax department will improve India’s ranking at rating agencies like Moody’s as compliance raids signal a country’s stable policy for legal compliance. The improved ratings help garner more investment. As more and more companies are looking to shift their outlets to other countries from China, a stable outlook can do wonders for India.