WazirX under tax lens: GST department says crypto exchange evaded Rs 40.5 crore in taxes

The tax department on Thursday late evening managed to recover Rs 49.2 crore from WazirX, including GST, interest and penalties.

The indirect tax department claims that WazirX issued its own cryptocurrency — WRX coins— through Zanmai Labs but refused to pay GST on that. Tax department contended that GST of 18% is applicable on these coins that were sold on the exchange.

Zanmai Labs, the tax department said, was managing WazirX’s cryptocurrency exchange application in India. Both WazirX and WRX, the coins, are owned by Binance Investments, a Seychelles-based entity, the tax department said.

Tax investigations showed that WazirX allowed trading and investment in other crypto assets such as Bitcoins mainly in two ways. First, the customers could either buy these crypto-assets through INR or through WRX coins.

“The WRX coins are required to be purchased from the WazirX platform by the trader in Indian rupee. The Taxpayer is charging a commission on each transaction in cryptocurrency from both buyer and seller. The platform provides options to the trader to transact in INR or WRX coins,” the tax departments said.

In cases where the trader opts for transactions in the Indian rupee, a commission was charged on trading volume. The commission, the tax investigators found, was to the tune of 0.2% of the trading volume.

WazirX is paying GST on the commission. “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 such commission,” the tax department said.

WazirX and its CEO Nischal Shetty did not respond to an ET query.

All the large exchanges including WazirX have launched their own cryptocurrencies. These are essentially currencies that are traded on their exchange.

Currently, there is no clarity around how much taxes are applicable on cryptocurrencies under income tax or under GST regulations. This is mainly because of the ambiguity around categorising cryptocurrencies such as Bitcoin and other assets. As to whether they can be treated similar to currency, equity, gold or a technology, service or like a lottery. Income tax rates on returns from different assets are separate ranging from 10% to 35%.

GST rates too could differ depending on how cryptocurrency is categorised.

This is not the first time the cryptocurrency has found itself at the crosshair with the tax authorities.

Earlier in 2017, tax investigations were carried out where top executives and promoters of some cryptocurrency exchanges were asked to explain their business model and how much indirect tax — either service tax or value-added tax — could be levied.

The tax authorities wanted to understand how to tax the revenues of the exchanges. The problem was not just about Sales Tax and VAT but also about Goods and Service Tax. As to how Bitcoins could be treated under GST.

This also comes around at a time when there is regulatory ambiguity around cryptocurrency.

The government is discussing with stakeholders whether cryptocurrencies should be completely banned or whether they should be allowed in a limited way where the Reserve Bank of India (RBI) will primarily regulate them, ET reported on December 11.

Several finance ministry officials, the RBI, tax departments and investigating agencies including the Financial Intelligence Unit have raised concerns about how in its current form cryptocurrencies are a “systemic risk”, not just for the country’s security but also for its economy, ET reported.

Officials have also raised concerns over how cryptocurrencies are used and in case of a law allowing them will be continued to be used for “illegitimate untraceable transactions” and this could “substantially reduce regulatory effectiveness.”

RBI has also
raised fresh concerns over stablecoins and said that any crypto asset that’s pegged to the US dollar or any other currency could undermine the Indian rupee.

The central bank officials have raised these concerns with the government in several meetings held recently, ET first reported on December 24. Almost all Indian cryptocurrency platforms are offering stablecoins and some of them are even offering an interest rate—similar to a fixed deposit—of around 12%.