India’s Finance Ministry has revealed significant tax evasion by cryptocurrency exchanges, with a total of ₹824.14 crore (approximately $96 million) in Goods and Services Tax (GST) evaded.
The majority of this evasion comes from a company within the Binance group, Nest Services Limited, which is based in Seychelles. According to the Minister of State for Finance, Pankaj Chaudhary, this discovery was made in response to a parliamentary question regarding the tax compliance of cryptocurrency exchanges operating in India
Major Contributors to GST Evasion, Binance and WazirX
Nest Services Limited, part of the Binance Group, was found to have evaded GST amounting to ₹722.43 crore (roughly $85 million), making it the largest contributor to the identified evasion.
Binance has faced repeated regulatory scrutiny worldwide, and this latest revelation only adds to the challenges it faces in India. Binance’s activities in the country have been particularly complicated, especially with its long-standing legal and regulatory issues.
The second-largest GST evader in the Indian cryptocurrency space is WazirX, which is operated by Zanmai Labs Pvt. Ltd. WazirX, one of India’s largest and most popular exchanges, was found to have evaded ₹40.51 crore (more than $4.7 million) in GST.
The platform has faced its own set of troubles recently, including a significant security breach in July 2023 when hackers stole $235 million worth of funds. Despite these challenges, WazirX remains an active player in the Indian cryptocurrency market, and the company is now under further scrutiny following these revelations of tax evasion.
The Regulatory Landscape and Increased Scrutiny
The Indian government has been tightening its grip on cryptocurrency-related activities, particularly concerning tax compliance. In March 2023, cryptocurrency assets were brought under the purview of the Prevention of Money Laundering Act (PMLA), which requires exchanges and service providers to comply with stringent anti-money laundering (AML) norms, including Know Your Customer (KYC) regulations.
This move was part of the government’s broader strategy to regulate the rapidly growing digital asset space and curb illegal activities such as money laundering.
The enforcement of these regulations is overseen by the Financial Intelligence Unit-India (FIU-IND), which works to ensure that cryptocurrency exchanges and related entities follow the rules laid out by the Indian government.
Under this framework, 47 Virtual Digital Asset Service Providers (VDASPs) have registered as reporting entities with the Financial Intelligence Unit. Of these, 17 entities have been investigated for GST evasion.
Binance’s Legal Struggles in India
Binance has faced ongoing regulatory issues in India. The company had been banned from operating in the country for seven months due to its failure to comply with local regulations and its inability to secure the proper operating licenses.
In August 2023, Binance announced that it had secured registration to operate legally in India after paying a $2.5 million fine for operating without approval. This followed extensive efforts to resolve its compliance issues, which included addressing concerns related to money laundering.
In an interesting twist, Changpeng Zhao, the co-founder of Binance, recently tweeted a post from 2022, where he urged WazirX users to transfer their funds to Binance.
The tweet pointed out that Binance could disable WazirX’s wallets, which was widely interpreted as a prediction of the regulatory troubles that WazirX was about to face.
Zhao’s comments have taken on additional significance in light of the ongoing regulatory crackdown on crypto exchanges in India.
What Does This Mean for India’s Crypto Ecosystem?
The revelations of significant tax evasion by Binance and WazirX are a reminder of the challenges faced by cryptocurrency exchanges in India. With the government continuing to enforce stricter regulations, the pressure on exchanges to comply with the country’s tax and money laundering laws will only increase.
India’s actions reflect the global trend toward greater regulatory oversight of the cryptocurrency industry, which is seen as crucial to ensuring that digital assets are not used for illicit activities such as money laundering or tax evasion.
The country’s regulators will likely continue to scrutinize exchanges more closely, ensuring that they meet the standards set by the PMLA and KYC rules. This continued oversight could ultimately shape the future of cryptocurrency operations in India and other markets worldwide.