The income tax department raided the offices of top Chinese smartphone brands Xiaomi and Oppo on Wednesday, citing “intelligence inputs” suggesting the companies were concealing income and evading taxes. Anti-smuggling agency Directorate of Revenue Intelligence had searched Foxconn India’s unit, Bharat FIH, and Dixon Technologies’ factories in South India a day earlier, according to government officials. Xiaomi’s contract manufacturers are Bharat FIH and Dixon.
According to people familiar with the situation, the tax department searched more than 20 locations linked to Oppo and Xiaomi in the National Capital Region, Mumbai, Rajkot, and Karnataka. The offices of OnePlus, a Chinese company that has merged with Oppo but operates as a separate brand, were also searched.
Xiaomi and Oppo both stated that they were fully cooperating with law enforcement. Bharat FIH and Dixon did not react to emails requesting comment until after press time, even though Bharat FIH announced a Rs 5,000 crore IPO in India on Wednesday.
On Wednesday, the I-T raids began early in the morning and lasted until the end of the day. The tax agency did not make an official announcement until late this evening, but sources say factories, godowns, offices, and the homes of senior officials of the enterprises, as well as some of its distributors, were raided.
“The residential premises of the CFO of one of the assessee firms was searched by the team; other key managerial persons have also been covered during the searches,” a senior official told ET.
According to the person, the raids were predicated on “actionable intelligence inputs” on “multiple infractions” by Chinese enterprises. According to him, losses were booked in certain situations even though the import bills showed a profit. The raids on Xiaomi and Oppo are the most recent in a series of actions in India against Chinese corporations.
Over the last three months, the I-T department has undertaken searches of telecom and technology companies, as well as mining, chemical, and heavy machinery manufacturing enterprises and their affiliates, all of which are controlled by Chinese organizations. According to government assertions, investigations exposed unaccounted income and discovered that these companies were engaging in tax evasion.
In addition, under the Prevention of Money Laundering Act, several state police and agencies have taken action against Chinese-owned app-based lenders. These actions come amid ongoing border tensions between India and China, prompting New Delhi to tighten rules on incoming investments from countries with which India shares a border.
“One of Oppo’s Chinese distribution partners was recently penalized in hundreds of crores by the ED in Hyderabad,” another person familiar with the matter said.
“As an invested partner in India, we highly respect and abide by the law of the land. We will continue to fully cooperate with authorities concerned as per procedure,” an Oppo India spokesperson said in a statement to ET.
Xiaomi India also issued a similar statement. “As a responsible company, we give paramount importance to ensuring that we are compliant with all Indian laws. As an invested partner in India, we are fully cooperating with authorities to ensure they have all the required information” the company said.
According to a report by ET in October, the Indian government has been pressuring Oppo and Chinese rival Vivo to quit using Chinese partners and instead employ local distributors in India. Because there is no legal framework in place to prohibit such activities, the government has unofficially communicated its position to the brands. Meanwhile, it’s working on a regulatory framework that might contain a rule about dealing with distribution businesses from nations that share India’s borders.
Oppo, which has a market share of more than 10% in India, and Vivo, which has a market share of more than 15%, are both traditionally strong offline players. They’ve just built a network of Chinese partners to help them distribute their items. Xiaomi is also at odds with its offline partners over claimed preferential treatment for its online channel. Xiaomi has vehemently rejected any sort of favoritism.
The searches on Wednesday occurred amid ongoing border tensions between India and China. New Delhi is preparing a list of trusted sources and companies for telecom equipment and networking products to combat alleged cyber-espionage by Chinese corporations at the state’s request.
Experts believe the decision is intended at keeping Chinese companies like Huawei and ZTE out of crucial telecom network areas. According to ET, the government is now working on a similar method to increase inspection of Chinese smartphone manufacturers.