Like everyone else, Indian bitcoin exchanges are confused about any applicable taxes on operating margins or revenues and are making moves to seek clarity over taxation slabs. If applicable, exchanges could pay over $1 billion in taxes.
According to Indian business daily Economic Times, seven of India’s leading bitcoin exchanges are planning to approach the Advance Authority of Ruling (AAR) – a judicial body tasked to provide clarity on taxation queries for companies and associations in India. Specifically, the exchanges are looking to ascertain if they are required to pay goods and services tax following India’s biggest taxation revamp in 2017 which sees a singular indirect tax levied on all goods and services for the entire country.
It’s unlikely that India’s exchanges are getting any answers soon as authorities struggle to reveal any clear guidelines in either regulation or taxation of cryptocurrencies like bitcoin in the country.
The report cites a source with direct knowledge of the exchanges’ approach to the AAR as stating:
“At least one Bitcoin exchange has filed an application with the [west Indian state] Maharashtra AAR for future tax liability. The tax department is currently researching the concept as Bitcoins are a very complex subject.”
If bitcoin is deemed a currency – this is highly unlikely – bitcoin exchanges will not be liable to pay any taxes. If bitcoin is classified a good, exchanges will see an 18% tax slab under the new GST regime. Seen as a service, bitcoin exchanges will be liable to pay 12% in taxes.
The proactive effort by exchanges come within a month of Indian tax authorities visiting multiple exchanges across the country to ‘survey’ information and records of bitcoin adopters and traders in India. India’s official taxation authority is reportedly set to issue notices to 500,000 ‘high net-worth individuals’, reminding them to pay capital gains taxes on their bitcoin investments and trade.
Meanwhile, Indian exchanges are still trying to determine if GST is applicable on their margins earned or their total revenue.
“The combined revenue of top seven players would be around ₹40,000 crore (approx. $6.3 billion] and they operate at about 20% margins,“ revealed one tax official after reviewing exchanges’ balance sheets last month. If this were true, India’s Income Tax (IT) department could stand to gain up to ₹7,200 crores, approx. $1.13 billion in taxes at an 18% tax rate for goods, if exchanges’ revenues are taxed.
Some exchanges have not been forthcoming in revealing their balance sheets to authorities, the report adds, revealing they haven’t paid any sales or value added taxes (VAT) until date. Others have submitted questionable data. “When we compared the annual results and explanations submitted to the sales tax and VAT authorities, they were diametrically opposite,” the tax official added.
Over the past week alone, India’s government likened cryptocurrency investments to ponzi schemes while the country’s primary financial official refused to categorize bitcoin as legal tender. Still, it’s a near certainty that India’s taxmen are looking to bite big chunks off of retail investors and exchanges after bitcoin’s meteoric gains in 2017.