After Xiaomi and Huawei, Chinese phone maker Vivo is the latest to face tax scrutiny in India

NEW DELHI — Smartphone maker Vivo has become the latest Chinese technology company to face tax scrutiny in India, prompting China’s embassy to warn that “repeated investigations” are hurting the confidence of Chinese companies operating in the South Asian country.

India’s Law Enforcement Directorate, a law enforcement agency that investigates financial crimes, on Thursday alleged that Vivo Mobiles India Private Ltd. And associated companies sent profits abroad to show losses in India and avoid paying taxes.

The agency said it carried out raids on Tuesday at 48 locations of Vivo’s India unit and 23 associated entities after a complaint from India’s Ministry of Corporate Affairs alleged that shareholders in some companies used forged documents and false addresses for incorporation. The agency said its investigation showed that, in some cases, the addresses provided belonged to a government building. So far, authorities have seized 119 bank accounts with deposits totaling nearly $60 million.

Vivo did not immediately respond to a request for comment Thursday. In a statement released prior to the enforcement agency’s allegations, Vivo said it is cooperating with authorities, and is committed to fully complying with local laws.

Wang Xiaojian, a spokesperson for the Chinese Embassy in India, said in a statement on Wednesday, after local media reported the attack.

The law enforcement agency said it does not comment on investigations. But other Indian officials argue that there is a pattern of targeting Chinese companies.

“Our view of companies is not driven by whether they are Chinese or not,” India’s Minister of State for Technology Rajiv Chandrasekhar said at a press conference on Thursday. “There is no pattern in which we are looking to look for A and B. They have fallen on the wrong side of the tax laws, and like any Indian company, they have to face the consequences of the law.”

The minister noted that earlier this week he met with Chinese smartphone makers to talk about supply chains and exports. On Wednesday Mr. Chandrasekhar tweet a photo About the same with Xiaomi’s new India manager, Alvin Tse. Mr Tse, Inc Tweet the same dayHe said that Xiaomi is “committed to #MakeInIndia to the world, strengthening our localization efforts, and deepening the supply system to make technology accessible to millions of Indians.”

Incentives from the Indian government have prompted smartphone makers to invest heavily in domestic manufacturing in recent years. Shelby Jain, research analyst at Counterpoint Research, said that in the first quarter of 2022, about 98% of phones sold in India were manufactured in the country. Chinese companies made almost 100% of their domestically sold phones in India. For Samsung, that figure was 97%, and for Apple, it was close to 60%, Jain said.

Political experts said India has increased pressure on Chinese companies after relations between the two nuclear-armed neighbors deteriorated following a border dispute in 2020. Clashes in the Himalayas left 20 Indian soldiers and four Chinese soldiers dead. Since then, troop deployments to the disputed border have reached their highest level in decades.

The Indian government has banned hundreds of Chinese mobile apps, including TikTok and messaging app WeChat.

Over the past year, Indian tax authorities have launched raids on the offices of several Chinese phone makers, including Xiaomi, Oppo, OnePlus and Huawei Technologies Co.

In January, the Finance Ministry said it fined Xiaomi about $88 million for tax evasion, and in April, authorities confiscated about $725 million from its domestic unit after the company allegedly violated foreign exchange laws. Xiaomi has denied any wrongdoing, and the court has suspended its assets.

“All of these actions against Chinese telecom companies and phone makers are part of the bigger picture, which is long-standing unresolved strategic tensions between the two sides,” said Sriram Chulia, dean of OP Jindal Global University’s School of International Affairs.

He added that every crackdown on a Chinese company signals to Beijing that the two countries cannot maintain normal trade relations if New Delhi feels its national security is threatened. Since bilateral relations have soured, New Delhi has also been keen to reduce dependence on China in essential consumer sectors, especially in technology.

But technology analysts say weaning India off affordable Chinese phones will be tough.

Ms. Jain said Indian consumers continue to buy Chinese phones even as authorities have launched raids against the companies and relations between India and China have been strained during the pandemic.

In the first quarter of 2022, Chinese phone manufacturers accounted for 74% of the Indian smartphone market, with Xiaomi at the top at 23% and Vivo at fourth at 15%, according to Counterpoint Research. Indian telecom company Jio has only about 2% of the market.

“Chinese players are dominating the market,” said analyst Ms. Jin. “Even if people want to switch to other players, they don’t have many alternatives.”

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