After discovering a $5.43 million GST evade on trade commissions, government authorities from the CGST Mumbai Zone retrieved the funds from crypto exchange WazirX.
WazirX, an Indian crypto exchange, allegedly paid more than $6.6 million (49.2 crore rupees) for fines for failing to pay Goods and Services Tax (GST) on trade charges. The overall amount covers the overdue tax of $5.43 million (40.5 crore rupees), interest, and a non-payment fine.
After detecting a GST evade of $5.43 million on the commissions, government officials from the Central GST and Central Excise committee (CGST Mumbai Zone) retrieved the funds from the crypto exchange. An ordinary GST fraud includes the creation of fraudulent bills without the products being transferred between the vendor and the buyer.
The tax authorities discovered that WazirX utilises its in-house WRX tokens for commissions, that were allocated by Zanmai Labs, as per local media Economic Times. The following research indicated that the crypto exchange failed to pay an 18% tax on the total tokens distributed depending on their market price.
The investigators discovered that WazirX paid GST on the 0.2 % commission it charges users for trading in local currency, i.e. the rupee, clarifying:
“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.”
Binance, the world's leading crypto exchange by trade volume, owns WazirX and WRX tokens.
According to a representative of Zanmai Labs, the default of tax was due to a misunderstanding of GST rules:
“We voluntarily paid additional GST in order to be cooperative and compliant. There was and is no intention to evade tax.”
WazirX CEO Nischal Shetty recently said that regulatory transparency is necessary for retail adoption. He also cautioned that enacting regulations overnight could damage the crypto ecosystem's growth and create gaps for undesirable actors:
“There is a $2.5-trillion market out there, and it is not going to wait for any nation to come on board. I’ve been tweeting ‘#IndiaWantsCrypto’ for over 1,000 days with the sole objective of having crypto regulation in India.”
Whereas the idea of GST is relatively new in the region, the Indian government has earlier decided to be lenient toward defaulters and fraudsters, often resolving such cases with a financial penalty and a low chance of prison time. The spokesman for Zanmai Labs concluded:
"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."
The Confederation of Indian Industries (CII) suggested considering cryptocurrencies as a distinct group of securities to assist the Indian government in determining crypto laws.
According to a report created by the non-governmental trade association, the CII suggests developing new regulations for the emerging crypto industry rather than regulating it within existing securities law.
As per the reports, the CII proposed a special section of income tax and GST regulations that will recognise cryptocurrencies as an asset class for tax reasons until a user particularly treats it as "stock in trade."