As the negotiations for a free-trade agreement (FTA) between India and Rishi Sunak’s government progress, talks have commenced regarding measures to combat the issue of under-invoicing of alcohol. One approach being considered involves the establishment of ‘place valuation rules.’ These rules would necessitate importers to remit customs duty according to a value determined by customs authorities, serving as a benchmark price. This initiative aims to address the concern of underreported prices and ensure fair valuation.
The practice of under-invoicing alcohol for importing liquor into India has become a prevalent strategy adopted by foreign brands. This tactic allows them to evade substantial taxes, even though regulations exist for transfer pricing and transactions involving related parties.
In a recent development, the multinational corporation Pernod Ricard encountered a tax claim of approximately INR 2,000 crore. This claim was based on allegations of intentionally undervaluing concentrate imports over multiple years, a practice commonly referred to as “under-invoicing.”
According to an insider, the Indian government’s strategy to combat under-invoicing involves entrusting DG Valuations within the Central Board of Indirect Taxes and Customs with the responsibility of conducting a valuation assessment and establishing a specified price.
Once the reference price is established, all incoming shipments to the nation would be obligated to pay taxes according to the value determined by customs authorities, regardless of their stance on the taxation matter.
Nevertheless, importers are afforded an opportunity to contest the established price. The source mentioned that if they provide valid justifications, the authorities retain the authority to make a decision and allocate a reduced value for the imported goods.
One approach to address this concern involves having the Directorate General of Foreign Trade establish a minimum import price (MIP). However, this course of action would have led to only commodities surpassing the set price threshold being permitted for entry into India.
The matter of under-invoicing was raised during internal deliberations precisely at a juncture when the country is engaged in negotiations for a free trade agreement (FTA) aimed at securing reduced tariffs for imported Scotch whisky.
Indian officials are in discussions to secure reductions in tariffs, with the objective of safeguarding the segment of bottles priced below INR 750 from any adverse effects stemming from this initiative.
In their efforts to advocate for domestic brands, the Confederation of Indian Alcoholic Beverage Companies (CIABC) proposed the implementation of a minimum import price.
The organization has highlighted that certain alcohol-importing brands in India provided excise authorities with quotations that were one-third of the cost, insurance, and freight (CIF) price they had presented to duty-free outlets. Consequently, the consumer prices of certain brands in India have been lower than the expenses incurred in the UK.
According to CIABC, free trade agreements (FTAs) and under-invoicing could potentially have a negative effect on domestic industry participants.
Up until now, the deliberations within the Indian government have centered solely on bottled whisky. Conversations regarding other varieties of alcohol are still pending.
For years, foreign players have been lobbying to get the Indian government to lower the duty on imported spirits, which is currently fixed at 150 per cent.