Misinvoicing costs country Tk64,000 crore a year

Bangladesh lost a staggering Tk63,924 crore ($7.53 billion) a year between 2008 and 2017 to trade misinvoicing, equivalent to nearly one-fifth of the country's tax collection target for the current fiscal year, says a major report by a US-based think-tank.

The Global Financial Integrity (GFI), which published the report on Tuesday, also said the average value of Bangladesh's trade misinvoicing was 17.95 percent of the country's total trade with 135 developing countries and all of its trading partners during the same period.

Bangladesh ranked 33rd globally and 3rd in South Asia in terms of illicit outflows of money through trade misinvoicing.

The GFI, in its previous report released in January last year, found that Bangladesh lost $5.9 billion in 2015 through trade misinvoicing.

"Businesspeople are increasingly getting second and third homes abroad for their children. This reflects rich people have no confidence in our political and economic future," Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh, told The Business Standard on Tuesday.

Iqbal Mahmood, chairman of the Anti-corruption Commission (ACC), termed the trend "alarming" for the economy.

"Information showed in the Global Financial Integrity's report about trade-based money laundering from Bangladesh is alarming for us. We need to prevent this," the anti-graft watchdog boss told The Business Standard in his immediate reaction. 

He emphasised close coordination between the revenue board, the Bangladesh Bank and the anti-graft body to stop the illegal act. 

Mahmood also said it is the National Board of Revenue that has to play the lead role in tackling trade misinvoicing as it does not fall under the ACC jurisdiction. 

The ACC chairman said they have sent a letter to the revenue board expressing their interest in signing an agreement in this regard.

Meanwhile, ACC spokesperson Pranab Kumar Bhattacharjee said they have filed several cases on allegations of trade-based money laundering using under or over invoices.

The GFI published its annual update titled "Trade-Related Illicit Financial Flows in 135 Developing Countries: 2008-2017" that examines the illicit financial flows across these developing countries and 36 other advanced economies.

Trade misinvoicing, by which unscrupulous businesses manipulate price, quantity or quality of a good or service on an invoice submitted to customs to evade tax and shift the money to safe haven, is the largest component of illicit financial outflows measured by the GFI.

China topped the list with average $482 billion a year, followed by Russia over $92 billion, Mexico over $81 billion, India nearly $78 billion, Malaysia $64 billion and Poland $54 billion.

India led the list among the eight South Asian nations, followed by Pakistan with $7.7 billion, Sri Lanka $3.69 billion and Nepal $1.03 billion. Other south Asian countries including Maldives, Afghanistan and Bhutan lost less than a billion dollar per year during the reported period.

This year's report only focuses on trade misinvoicing, or the trade-related aspects of illicit financial flows. It does not address other forms of illicit financial flows.

The GFI found this mismatched-amount based on the individual country's government trade statistics supplied to the United Nations Comtrade database.

The GFI identified the sum of the value gap at $8.8 trillion in trade between the 135 developing and 36 advanced economies during the 2008-2017 period.

Only in 2017, the total value gap in trade was $817.6 billion, according to the GFI report.

GFI report found that the value gaps – as a percent of total trade – were larger in trade between developing countries and advanced economies than in developing countries' trade with all of their global trading partners.

In the latest year, countries from the developing Asia region had the largest combined value gap in terms of US dollars, at $439.4 billion, in its trade with the 36 advanced economies. It was followed by Developing Europe with S$171.4 billion, Western Hemisphere $121.4 billion, Middle East and North Africa $61.1 billion and the Sub-Saharan Africa region $24.3 billion.

Tom Cardamone, president and chief executive officer of the GFI, said, "Developing countries are losing a significant percentage of the value of their trade transactions".

He said in 2017, the value gap associated with trade misinvoicing amounted to 18 percent of the developing countries' total trade. 

"If the integrity of trade transactions cannot be assured, it is unlikely countries will be able to achieve the UN Sustainable Development Goals by the 2030 deadline," he remarked in the report.

This analysis suggests trade misinvoicing continues to be a major global problem, particularly for developing countries that are struggling to raise domestic tax revenue to finance national development goals.

The GFI also identified the bilateral trade of specific commodities at the two-digit international Harmonised System (HS) of product codes. Trade value of misinvoicing for electrical machinery (HS 85) is on top with average $153.7 billion followed by mineral fuels (HS 27) with $113.2 billion and machinery (HS 84) with $111.7 billion. 

According to a World Trade Organisation estimate, less than 2 percent of shipping containers are searched every year, raising a question mark over the veracity of customs invoices.

In the previous report, the GFI showed that $5.9 billion was siphoned off from Bangladesh in between 2006-2015.