Rajesh Rai | Phuentsholing

When Phuentsholing gate closed on March 23, 2020 as a response to the pandemic, the traditional means of trade with cross-border movement of people froze.

Bhutanese Currency (BC) was not accepted in places beyond Jaigaon and due to this, millions of Ngultrum (Nu) remained floating in Jaigaon. This situation has given rise to an increase in Rupee value against the BC and then reports says BC was exchanged at a depreciated value against INR.

Even before the border closure, illegal trading of INR still thrived across the border. However, the commission dealers charged was just over one to 1.5 percent. About a month ago, BC had fallen by 8.5 percent compared to Rupee. Today, it is fluctuating between 7.5 to 8.5 percent.

After the gate closure, the Royal Monetary Authority (RMA) facilitated seven remittances amounting to Rs 1.5 billion. But Jaigaon traders have again requested for real-time gross settlement (RTGS) from RMA.

RMA is ready to provide the exchange, however, the traders in Jaigaon have not been able to provide authentic documents to prove the exchange through RTGS, sources said.

Black money?

Few who understand the issue in Phuentsholing say that corrupt practices had always existed, which resulted in Nu’s depreciation across the border.

An Indian businessman in Phuentsholing, who has a Bhutanese license said, considering the introduction of the IGST and improved customs system in Phuentsholing, the corruption have reduced these days.

“Customs LCS in Jaigaon check all the goods before approval for declaration and invoices. Bhutanese importers also cannot import directly to Phuentsholing like before,” he said.

“We have to send the shipping bill to the party for refund. If I bring goods from Siliguri, then the shipping bill prepared in Jaigaon LCS has to be sent to Siliguri. So there’s no chance to do illegal things.”

He said Bhutanese importers even register their vehicles for which the invoices have to be sent to customs. The customs email the importers about the vehicle registration date.

“Then we bring in. Then, after taxes, we are given RTGS facility.”

However, there are still people who practice fraud and illegal means of business. “Who told them to take Ngultrum?” he said. “No Bhutanese went to Jaigaon to buy. It’s baseless money.”

If the government gives RTGS, illegal trading of BC will drop, the businessman said.

Evasion by under-invoicing and over in-voicing

One of the most alleged corrupt practices that could be leading to the INR-BC problem is tax evasion by under-invoicing and over-invoicing.

In the case of under-invoicing, both importers from Bhutan and exporters from across the border decrease the purchase and sales amount so that they could evade tax. Due to the limited physical verification owing to the Covid-19 transmission at the MDP, the actual size and quantity of goods are unlikely to be valued and taxed.

For example, both importer and exporter may make a deal of Nu 100. However, they will bill it as just Nu 70, in which the tax will be calculated. However, the goods and commodities still enter Phuentsholing. Bhutanese importers will pay the remaining amount of Nu 30 by cash, which is also stagnating the Ngultrum in Jaigaon. Over-invoicing is mostly done over the zero-rated items, mostly essentials.

Another businessman in the town said that the Bhutanese importer and Indian exporter can collude in this. For example, if one metric tonne (MT) of zero-rated items is traded, the importer and exporter will increase the quantity. A huge amount of INR is repatriated via RTGS in such practices.

“This is a highly vulnerable situation,” he said, adding that sometimes there may not even be a single consignment actually entering at the MDP but it will be taxed for requested real-time gross settlement (RTGS). “This is where corruption breeds.”

ACC investigation

The Anti-Corruption Commission (ACC) is investigating alleged corruption cases at the Mini Dry Port (MDP), Phuentsholing. The commission’s finding also indicates possible INR repartition points to undervaluation and overvaluation.

ACC’s report states that one importer dealing in supply of betel nuts and leaves, who is believed to have made fortune during the pandemic, sought to establish a link with custom officials as it was unpredictable and risky for him to bring undervalued or illegal consignments with an established setting with customs.

Evidence showed that importers arrange with suppliers across the border to undervalue their invoice by 50 percent for declaration at the customs check post. Half of the tax evaded, sometimes, even more, went to the customs officials whereas the remaining half remained as a benefit to the importer.

The ACC findings also revealed that there are other compelling reasons why bribery could occur. It is to falsify declaration by understating the quantity of higher-taxed items and vice versa.

Contraband and others

ACC also found that passing contraband items like tobacco and narcotics; arranging and certifying fake import documents for sending RTGS; facilitating release of stranded consignments without imposing demurrage charges; assisting the movement of physical cash through the border and withholding of invoices from processing for declaration.

Payments for such illegal businesses are done in cash payment. It is also the primary reason why BC is flowing out to Jaigaon.

Just recently, Thimphu police seized a huge consignment of contraband such as SP plus capsules and codeine syrup. A taxi driver was arrested. The suspect had told the illegal consignment had entered Phuentsholing from Jaigaon.

This shows there are still systemic loopholes in the monitoring system at MDP.

Huge consignments of tobacco were smuggled in during the pandemic time starting from March 2020 until tobacco was legalised recently.

ACC’s preliminary investigation revealed that two private individuals teamed up to venture on doma supply business. They imported vegetables and doma in the name of at least four licenses.

During 2020 to 2021 (until mid-September 2021), the combined value of betel nuts and leaves imported in these four licenses amounted to Nu 176.419M, which accounts for more than 56 percent of the total betel nut import through Phuentsholing.

However, they were also involved in smuggling tobacco products hidden in vegetables and betel nut consignments as well as other fraudulent financial scams.

They are also suspected of sending cash collected from selling tobacco to Jaigaon through some carriers. One of them was arrested for smuggling tobacco in June 2021 and is currently released on bail.

The duo established a link with certain customs officials and paid bribes ranging from Nu. 11,000 to Nu 80,000 per instance. They bribes to evade 20 percent sales tax on half the value of betel nut consignment.

They also evaded tax by falsifying the proportion of consignment between betel nut and betel leaves because of wide differences in tax rate by declaring more quantity of an item with lower tax rates or zero tax rate and vice versa when the reality was otherwise.

Trading of agricultural products

Another possible means for outflow of Nu besides the smuggling activities are vehicles that are exiting Phuentsholing. Undervalued cash is moving out in vehicles that exit, sources indicated.

Export of agricultural products such as potatoes is also not channelised through the proper banking system.

Jaigaon traders who buy agricultural products receive INR payments from a third party. This should actually enter Bhutan to the Bhutanese exporters. However, exporters are just paid in Nu, that also in cash. Many people across the border also use Bhutanese account numbers and transaction of money is easier.

Small business enterprises in Phuentsholing also import discreetly and don’t pay taxes. They make the Nu payments to their suppliers across the border.

Edited by Tshering Palden