Underinvoicing of export goods has become rampant with exporters showing a low value on paperwork to avoid taxes, raising fears of possible money laundering and loss of export revenue, officials said.

A study carried out by the Trade and Export Promotion Centre (TEPC) has uncovered underinvoicing in carpet exports, and the centre suspects that the practice may be prevalent in other exports too.

“The use of false pricing in exports has led to a widening of the trade deficit along with a possible threat of misuse of foreign currency earned from exports,” said TEPC Executive Director Sarad Bickram Rana.

TEPC statistics show that the country’s trade deficit swelled 19.1 percent to Rs613.72 billion in the first seven months of the current fiscal year. While imports jumped 18.6 percent to Rs661.22 billion, exports rose 11.9 percent to Rs47.50 billion during the period mid-July to mid-February this year.

Speaking at an interaction, Rana said the recent TEPC study found out that the practice of underinvoicing was common in carpet exports to China. 

According to the TEPC, several carpet exporters have been showing the value of their carpets as $26 per square metre on the invoice when they actually sell them for $150 per square metre in China.

“Based on this figure, exporters have been showing the value of carpets to be $124 per square metre lower than the real price,” Rana said.

The TEPC issues the Generalized System of Preferences Form A to carpet exporters after making a visit to the factory to verify that the carpets intended for export have been produced locally. According to the centre, the cost of producing a 100-knot woollen carpet is $100 per square metre on average.

TEPC statistics show that Nepal exported 56,000 square metres of woollen carpets to China in the first seven months of the current fiscal year. Shipments to the northern neighbour in 2016-17 totalled 100,000 square metres. “Based on these statistics, traders cheated the state out of Rs1.24 billion through underinvoicing just in the past year,” Rana said.

About two decades ago, the government fixed the floor price of Nepali woollen carpet at $55 per square metre. Subsequent governments, however, failed to continue the policy. According to the TEPC, Nepali carpets are being sold for up to $600 per square metre in other export markets including the US and Europe.

Rana suspects underinvoicing is being practiced in other exports too. He stressed the need for an investigation. “We have planned to conduct a similar study on other major exportable items of the country,” he added.

Underinvoicing in imports is one of the major issues that has been blamed for the low volume of revenue collection. Since September, the government has made a bill of export mandatory for imports from India worth more than Rs5,000. Earlier, the threshold was fixed at Rs25,000. Likewise, the government has started enforcing reference prices strictly to check underinvoicing.