WazirX crypto exchange dodged Rs 40.5 crore in tax, according to GST department

Bombay: The Goods and Services Tax (GST) department has launched an investigation into the activities of the WazirX cryptocurrency exchange for allegedly evading Rs 40.5 crore in tax. Late Thursday evening, the tax department recovered Rs 49.2 crore from the company – GST owed plus interest and penalties.

The Indirect Tax Service said WazirX issued its own cryptocurrency – WRX coins – through Zanmai Labs but did not pay GST on it. The tax department argued that the 18% GST was applicable on these parts.

According to the tax department, Zanmai Labs operated WazirX’s cryptocurrency exchange app in India. WazirX and its WRX coins are both owned by Binance Investments, a Seychelles-based entity, the tax department said.

Investigators said WazirX allowed trading and investing in crypto assets such as Bitcoins in two ways – using Indian Rupees or WRX coins.

In cases where the trader chooses to buy with Rupees, a 0.2% commission is charged on the trade. WazirX was paying GST on it, officials found. “But in cases where the merchant opts for the WRX coin transaction, the commission charged is 0.1% of the transaction volume and he was not paying GST on that commission,” the tax department said.

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WazirX and its CEO Nischal Shetty did not respond to questions from ET.

Like WazirX, all of the major crypto exchanges in India have launched their own cryptocurrencies.

There is currently no clarity on how cryptocurrencies are taxed in India, mainly due to confusion over whether they should be treated as currencies, securities, or some other type of asset. Income tax on the returns of various assets ranges from 10% to 35%. GST rates could also depend on how cryptocurrencies are classified.

This is not the first time that the operations of Indian cryptocurrency companies have come under scrutiny by the tax authorities. In 2017, investigators asked senior executives and promoters of some cryptocurrency exchanges to explain their business models and the amount of indirect tax – services tax or value-added tax – that can be levied.

The development comes amid persistent ambiguity around the regulation of cryptocurrencies in India. The government is discussing with stakeholders whether cryptocurrencies should be banned or regulated altogether, ET reported on December 11.

Several officials from the Ministry of Finance, the RBI, tax services and investigative agencies, including the Financial Intelligence Unit, have raised concerns that cryptocurrencies pose a “systemic risk” not only for the security of the country but also for its economy, reported ET. Officials have also raised concerns over how cryptocurrencies are being used for “illegitimate and untraceable transactions.”

Recently, the RBI also raised new concerns about stablecoins, claiming that any crypto asset linked to the US dollar or any other fiat currency could undermine the Indian rupee. Almost all Indian cryptocurrency platforms offer stablecoins and some even offer an interest rate similar to a fixed deposit of around 12%. Central bank officials have raised these concerns to the government at several recent meetings, ET reported for the first time on December 24.

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