Indian mobile brands in 2015, held a 43 per cent smartphone market share, but by 2018, their market share got reduced to a single-digit share. The reason can be attributed to Chinese smartphones being a huge hit in India due to their extremely low price. However, these Chinese Mobile brands are now in the deep water, as Xiaomi and Oppo— the prominent mobile brands, are facing the prospect of being fined, and it will reflect badly on Chinese mobile giants in India.
Chinese mobile giants slapped with fines over Rs 1000 crore
Xiaomi and Oppo might be slapped with fines of over Rs 1,000 crore for not following the regulatory mandate prescribed under the Income-tax Act. The brands are not complying with the rules for disclosure of transactions with associated enterprises.
Earlier in December, the I-T department carried out a pan-India search all over the country. It also conducted seizure operations on certain mobile communication dominated by foreign along with mobile handset manufacturing companies, and people connected to them. These associated persons belonged to Karnataka, Tamil Nadu, Assam, West Bengal, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra, Bihar, Rajasthan, and Delhi NCR.
The Central Board of Direct Taxes (CBDT), the parent body of IT department, reported, “The search action has revealed that two major companies (referring to Oppo and Xiaomi) have made remittance in the nature of royalty, to and on behalf of its group companies located abroad, which aggregates to more than ₹5,500 crore.”
“The claim of such expenses does not seem to be appropriate in light of the facts and evidence gathered during the search action,” it added.
“It is gathered that both these companies had not complied with the regulatory mandate prescribed under the Income-tax Act, 1961 for disclosure of transactions with associated enterprises. Such lapse makes them liable for penal action under the Income-tax Act, 1961, the quantum of which could be in the range of more than ₹1,000 crore,” the CBDT statement added.
Suspicious funds received by mobile brands
The investigation has revealed an almost similar approach for the purchase of the components for manufacturing of mobile handsets and foreign funds in the Indian company, but it ended up revealing doubtful sources from where such funds have been received as there is no credit worthiness of the lender. “The quantum of such borrowings is about ₹5,000 crore, on which interest expenses have also been claimed,” it added.
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The department also disclosed that it has found evidence in connection with inflation of expenses, payments on behalf of the associated enterprises, etcetera that reduced taxable profits of the Indian mobile handset manufacturing company. “Such amount could be in excess of ₹1,400 crores,” it further noted.
The department also discovered that one of the companies despite utilising the services of another brand located in India did not follow the provisions of tax deduction at source introduced since April 1, 2020. The quantum of liability of TDS on this account could be approximately ₹300 crores.
Another mobile company was also raided by IT on December 21, whose name is not divulged by the department. It said, “it has been detected that the control of the affairs of the company was substantively managed from a neighbouring country.”
Chinese mobile brands, for a long time, have encashed huge profits through the Indian market. As it is now revealed that they were adopting wrong measures to encash the profit, the Chinese brands must be ready to face the repercussions.