GST shadow on Indian cryptocurrency firms; foreign platforms go free

In the absence of regulations, international crypto and NFT platforms are escaping the GST net

The government is imposing goods and services tax (GST) on India-based cryptocurrency platforms, even as international crypto and non-fungible token (NFT) platforms continue to avoid paying taxes owing to the absence of regulations.

“In the absence of concrete regulations, the tax authorities are making unreasonable demands on Indian crypto companies. And we have to give in as we do not want any trouble,” said a top executive at a crypto platform who did not wish to be named. “International crypto platforms that are seeing billions of dollars of transactions from India do not face such demands. This will only encourage us to set up shop elsewhere,” he added.

Multiple domestic crypto trading platforms such as CoinSwitch Kuber, WazirX, BuyUCoin and Unocoin have recently come under the radar of the Directorate General of GST Intelligence for as much as Rs 70 crore of tax recoveries, according to media reports. Mumbai-based crypto exchange WazirX has already coughed up Rs 49 crore in GST dues and interest.

“They have visited all the crypto exchanges to look at everyone’s data on crypto transactions and demand the difference in taxes that were not paid according to their evaluation. Even our filings are under consideration,” said Sathvik Vishwanath, chief executive officer and co-founder of Unocoin.

However, the tax authorities may not be able to do the same with international crypto trading platforms like Binance, Kucoin, Bitstamp and the NFT marketplaces active in India. “These platforms won’t bother to engage with the tax department not only because they are based outside India, but also because they mostly have crypto-to-crypto transactions rather than fiat-to-crypto,” said a venture capital fund partner who invests in crypto start-ups.

“The government can track a transaction when I pay in INR to buy bitcoin on CoinDCX or WazirX. But how will it know when I transfer my crypto via a private wallet to an international platform?” he said.

Take, for instance, NFTically, a platform aimed at buying or selling NFTs or creating white-label NFT stores. Toshendra Sharma, CEO and co-founder of NFTically, said, “We do not pay any taxes in India as we are registered in the US. However, we encourage participants on our platform to pay a GST on their transactions.”

“It remains to be seen how the authorities propose to seek GST on the commission charged by international crypto platforms that have no presence in India. Generally, GST is not payable when the supplier is located outside India and is providing goods or services to customers in India, except for specially notified scenarios like online information database access and retrieval services (OIDAR),” said Prashanth Agarwal, partner at PwC.

“Hence, if the govt intends to tax the commission paid to overseas crypto platforms, it may need to make the necessary amendments to the GST law,” he added. 

Experts say that the only way to avoid more confusion is to bring in regulations that clearly define crypto transactions. 

For example, though WazirX had been paying GST on commissions earned from transactions between INR and crypto on its platform, the tax department asked it to also pay tax on the commissions earned from transactions between its native  crypto coin, WRX.

“The treatment of cryptocurrency as goods or property implies that the supply of bitcoins is a ‘taxable supply’ and, hence, subject to GST. Technically, a supply of cryptocurrency as goods or property in exchange for other virtual/real goods should fall within the ambit of ‘barter transaction’ since bartering is simply an exchange of one good for another,” said Salman Waris, partner at Delhi-based law firm, TechLegis.

Sources said that the tax demand on CoinSwitch Kuber could be high  because it buys and sells cryptocurrencies, and is not just a marketplace that facilitates such transactions. CoinSwitch Kuber did not respond to a query seeking clarification on the issue. WazirX said it did not have anything to add except that it has cooperated with the tax department and did not intend to evade taxes.

“Since it is not clear if legally, crypto is a currency, good or a service, there are no provisions specified under GST laws related to the sale or purchase of cryptocurrencies. However, any online platform that facilitates the transaction shall pay GST at 

18 per cent on the commission charge to regularise the trade,” said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.