Key Takeaways:
- Taxman recovers $6.62M from WazirX for evading tax on commission.
- The total recovery includes a $5.43 million (40.5 crore rupees) pending tax, interest, and a non-payment penalty.
- The tax department discovered that WazirX pays commissions with its in-house WRX tokens, which Zanmai Labs distributed.
- According to the tax department, Binance Investments, a Seychelles-based entity, owns WazirX and its WRX coins.
Following non-payment of Goods and Services Tax (GST) on trade commissions, Indian crypto exchange WazirX has paid over $6.6 million (49.2 crore rupees). The total recovery includes a $5.43 million (40.5 crore rupees) pending tax, interest, and a non-payment penalty.
Government officials from the Central GST and Central Excise committee (CGST Mumbai Zone) recovered the funds from the crypto exchange after detecting a GST evasion of $5.43 million on the commissions. Creating fake invoices without moving goods between the seller and the buyer is a common GST fraud.
According to the Economic Times, the tax department discovered that WazirX pays commissions with its in-house WRX tokens, which Zanmai Labs distributed. The tax department stated that Zanmai Labs was in charge of WazirX’s cryptocurrency exchange application in India. According to the tax department, Binance Investments, a Seychelles-based entity, owns WazirX and its WRX coins.
Further investigation revealed that the crypto exchange failed to pay an 18% tax on the total tokens issued based on its market price. Instead, the trader chooses to buy with rupees, a 0.2% commission is charged on the trade. The investigators said that “But in cases where the trader opts for transaction in WRX coins, the commission charged is 0.1% of trading volume, and they were not paying GST on this commission.”
According to a spokesperson for Zanmai Labs, they have been paying GST every month, and that there appears to be some ambiguity in the tax framework’s interpretation. He said that “There was an ambiguity in the interpretation of one of the components which led to a different calculation of GST paid. However, we voluntarily paid additional GST in order to be cooperative and compliant. There was and is no intention to evade tax.”
All of India’s major crypto exchanges, including WazirX, have launched their cryptocurrencies. There is currently no clarity on how cryptocurrencies are taxed in India, owing to uncertainty over whether they should be treated as currencies, securities, or another type of asset. Returns on various assets are taxed at rates ranging from 10% to 35%. GST rates may also be affected by how cryptocurrencies are classified.
This is not the first time tax authorities have scrutinized the operations of India’s cryptocurrency firms. In 2017, investigators asked top executives and promoters of some cryptocurrency exchanges to explain their business models and how much indirect tax, service tax, or value-added tax could be levied.
While the GST concept is new to the region, the Indian government has previously agreed to be lenient with defaulters and fraudsters, typically settling such cases with a monetary penalty and a reduced likelihood of jail time. However, according to a local media report, major cryptocurrency service providers in India are being investigated for possible tax evasion.
Zanmai Labs spokesperson concluded by saying, “We strongly believe that regulations will provide us with more clarity on taxation so that we can work in sync with the lawmakers and continue to be a responsible industry player.”
In this regard, the finance ministry has noted that “The GST Mumbai East Commissionerate of Mumbai Zone, while investigating the business activities of cryptocurrency exchange WazirX have detected GST Evasion of Rs 40.5 Crores. The Commissionerate has also recovered Rs 49.20 Crores in cash pertaining to GST evaded, interest and penalty.”
