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Export Fraud in India

Published online by Cambridge University Press:  22 November 2022

Adrien Bussy Open the ORCID record for Adrien Bussy [Opens in a new window]  and
Mehtab Ahmed Jagil
Adrien Bussy*
Affiliation:
Swiss National Bank and The Lee Kuan Yew School of Public Policy, National University of Singapore (NUS)
Mehtab Ahmed Jagil
Affiliation:
The Lee Kuan Yew School of Public Policy, National University of Singapore (NUS)
*
*Corresponding author: Adrien Bussy, Email: adrien.bussy@gmail.com
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Abstract

We investigate tax fraud in a major export-promotion program in India – the Duty Drawback scheme – which enables exporting firms to claim a cash rebate proportional to the value of their exports, at a product-specific drawback rate. We detect fraud based on two approaches. First, we show that bilateral trade asymmetries between reported exports by India and reported imports by trading partners of the same trade flows are systematically correlated with the rate of drawback, suggesting that exporting firms over-report exports to unduly gain duty drawback. Second, we find evidence of excess bunching in the distribution of unit values reported by India at kinks in the per-unit drawback schedule, relative to the distribution of unit values reported by importing countries. Our results suggest that fraud currently detected by customs represents only 3.8%–6% of actual fraud.

Keywords

H26F14Tax fraudinternational tradetax revenuesmisreportingduty drawback
Type
Original Article
Information
World Trade Review , Volume 22 , Issue 2 , May 2023 , pp. 255 - 277
Copyright
Copyright © The Author(s), 2022. Published by Cambridge University Press

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