Chinese companies in India are doing all kinds of illegal activities including tax evasion and snooping. Previously Oppo and Xiaomi, the Chinese smartphone giants were caught in tax frauds and now Huawei has been found to be involved in similar practices.
In the last few days, the Income Tax department has made several raids at Huawei offices, and it was found that the company has made inflated payments against receipt of technical services from its related parties outside India. According to the Department, the company made inflated payments to the tune of 129 crore rupees over a period of five years.
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During the search, it was also found that the assessee group has debited more than 350 crore rupees in its account books in recent financial years towards royalty to its related party – which is the parent company of Huawei in China.
“The assessee company could not justify the genuineness of obtaining of such alleged technical services in lieu of which payment has been made as also the basis of determination of consideration for the same. The expenses debited by the assessee company towards receipt of such services are to the tune of ₹129 crore over a period of five years. During the search, it was found that, the assessee group has debited more than ₹350 crore in its books of account in recent financial years towards royalty to its related party,” said the Income Tax department.
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Previously it was found that Xiaomi was evading custom duties through various methods. Based upon intelligence that M/s Xiaomi Technology India Private Limited (Xiaomi India) was evading customs duty by way of undervaluation, an investigation was initiated by the Directorate of Revenue Intelligence (DRI) against Xiaomi India and its contract manufacturers.
The Ministry of Finance referred to the “recovery of incriminating documents indicating that Xiaomi India was remitting royalty and licence fee to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd., under contractual obligation.”
It added, “During the investigations, it further emerged that the “royalty and licence fee” paid by Xiaomi India to Qualcomm USA and to Beijing Xiaomi Mobile Software Co. Ltd, China (related party of Xiaomi India) were not being added in the transaction value of the goods imported by Xiaomi India and its contract manufacturers.”
The full details of the investigations are still awaited. However, in a statement, the I-T department confirmed that a heavy fine could be imposed especially on Xiaomi and Oppo. Both companies 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.
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China dominates India’s huge smartphone market that witnessed a sale of over 150 million mobile phones in 2020 alone. According to Counterpoint Research, smartphone shipments were expected to reach 173 million in India in 2021.
In the July-September 2020 quarter, Chinese brands captured 74 per cent of the Indian smartphone market. Xiaomi alone accounted for 22 per cent of the shipment share.
India’s smartphone market just keeps getting bigger because of its young population demographics, increasing incomes and a craze for using smartphones.
If Xiaomi and other Chinese smartphone makers can manage to even retain their present share in the Indian market, they can gain big out of the growing market.
With cost-cutting tactics and cheaper prices, Chinese smartphone makers have managed to keep a hold on the Indian market till now. But why should India let China earn out of its smartphone users if China can dare to disrupt and celebrate industrial disruption in India? And so, India seems to be hitting China where it hurts the most.
The Chinese companies are sending hundreds of crore rupees to the home country by evading taxes. The government must take strict action against them and squeeze their profits to fill its coffers.