Chinese e-tailers in customs crosshairs
If you ordered a ‘gift’ from Club Factory, Shein or Ali Express, it might not make it through customs in India anymore. Ending months of speculation, the government has banned imports of Chinese goods, even retail goods valued under Rs 5,000, entering the country in the guise of ‘gifts’.
Officials say some Chinese app-based e-commerce players were until now misusing a rule in the foreign trade law of India under which imports worth up to Rs 5,000 was permitted as ‘gift’ and was exempted from customs duties. By shipping cheaper products, these firms were evading the import duty as well as the Goods and Services Tax.
The recent move, however, aims to curb the practice by allowing foreign companies to ship goods only after paying all applicable duties. Interestingly, the two exceptions to the ban are life-saving drugs and rakhis, talisman bracelets used during Raksha Bandhan.
“Import of goods, including those bought from e-commerce portals, via post or courier, where customs clearance is sought as gifts, is prohibited,” said a Directorate General of Foreign Trade notification. Import of goods as gifts with payment of full applicable duties is allowed, it said.
The customs department has been of late confiscating consignments masquerading as gifts, sent by Chinese firms, suspecting large-scale under-reporting of value. An approach to block clearance of such packages across major express cargo ports in Delhi, Mumbai and Bengaluru was adopted in January 2019 leading to a massive drop in the number of gifts coming into the country.
“The Delhi terminal, which was processing close to 2 lakh packages monthly at the end of last year, has since seen the number of packages come down to a lakh now,” an official said requesting anonymity.
As the consignments ran afoul of the customs authorities, Club Factory and Shein were forced to keep changing the airports where it receives the consignments.
Starting with Mumbai, they later moved to Delhi and Bengaluru. Other ports are also now notified to ensure Chinese e-commerce vendors did not shift their base.
Incidentally, Delhi’s trade deficit with Beijing stood at a whopping $53.6 billion in 2018-19. Now that the action against imports through the gift channel is largely tackled, foreign vendors have adopted another convenient route to avoid paying higher duties.
In June, the Mumbai customs port had seized hundreds of parcels of firms such as Sino India Etail and Globemax, which were acting as intermediaries on record for Chinese firms Shein and Club Factory, respectively.
“Club Factory is witnessing very healthy growth in India, which was the world’s most installed shopping app on Google Play Store in September 2019,” the company said in a statement, citing a report from Sensor Tower’s Store Intelligence platform.
“We have achieved more than 10 times growth in the past six months for our Indian SME business. The platform saw the highest growth in West Bengal, Bihar and Telangana with its mobile accessories, fashion and lifestyle products emerging as the most sought-after product categories during the Diwali shopping festival.”
While the Centre has been mulling 50 per cent taxes and customs duty on products bought from Chinese e-com firms, it is yet to finalise the exact taxes and duties including goods and services tax and customs duty.
In July, citizen engagement platform LocalCircles had written to the Central Board of Indirect Taxes to fix a flat rate of customs and GST at 42.05 per cent.
WTO moratorium
While countries do not impose customs duties on electronic transfer of services under a World Trade Organisation moratorium, they impose taxes on physical transfer of goods bought on e-commerce platforms.
India has also been insisting on ending the moratorium on electronic transfer of services with shrinking distinctions between goods and services, such as e-books, which leads to revenue loss.