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This week in tax: Crypto exchanges fall foul of India’s GST law

Does GST work for cryptocurrency?

The Indian government has recovered INR95.86 crore ($958 million) in unpaid GST from 11 crypto exchanges. The Income Tax Department is assessing how foreign and domestic exchanges operate in India.

The recovery of INR95.86 crore has added more fuel to the crypto tax debate in India. The Indian government may have to develop a special regulatory framework for the crypto industry or apply a specific goods and services tax (GST) to the sector.

Traders in cryptocurrency pay a GST rate of 18% in India because they are categorised as being part of the financial services industry. However, the tax evasion detected at several large exchanges may mean this levy is insufficient.

As part of the 2022 budget, Indian Finance Minister Nirmala Sitharaman put forward plans to impose a 30% rate on income generated from cryptocurrency and a 1% tax deducted at source (TDS) on transactions from April 1. If enforcement is the issue, a higher rate may not be the solution.

“Various exchanges have different mechanisms to procure cryptocurrencies that are traded in India. The government could look to define all the transactions even involving exchanges that could attract GST,” said Gaurav Mehta, founder of Catax, a cryptocurrency tax consultancy firm.

The crypto exchanges where GST evasion was detected include Coin DCX, Buy Ucoin, CoinSwitch Kuber, Unocoin and Flitpay. However, the highest levels of evasion were detected at Zanmai Labs, which operated a crypto exchange called WazirX.

The Central Board of Indirect Taxes and Customs (CBIC) claimed it had detected INR40.51 crore at Zanmai Labs. WazirX issued its own cryptocurrency WRX coins, but it did not pay the applicable 18% GST rate on the transactions.

The Indian government recovered INR49.18 crore from WazirX, including interest and penalties. Nevertheless, the crypto industry is expected to expand in India despite the heightened scrutiny of the tax authority.

In other news, ITR’s top stories covered the UK Supreme Court granting News Corp its appeal against HM Revenue and Customs in its VAT dispute and how Chinese companies have used transfer pricing adjustments to manage year end problems.

Meanwhile, Amazon may have to hold a vote on tax transparency at its annual meeting in April. Institutional investors are calling on the technology company to adopt the Global Reporting Initiative (GRI).

Australian budget sets a dull business tax agenda for 2022-23

Corporate tax directors have described Federal Treasurer Josh Frydenberg’s 2022-23 budget as “plain” and “boring”, with only a few tax measures for businesses, despite a strong economic year.

The government’s budget, announced in Parliament on March 29, included measures to broaden the patent box regime and cut taxes on fuel and personal income. Other stimulus measures will allow businesses to write off assets in response to higher fuel, food, and shipping costs.

Yet, economists warn that too many tax cuts will harm Australia’s economy, so few corporate tax measures were announced.

Although Australia’s economy is strong, and inflation has generated higher corporate tax revenues, the government limited spending on tax breaks. Frydenberg’s proposed measures were typical of a federal pre-election. Although no election date has been set, it must occur by May 21 2022 in accordance with the Australian Constitution.

US aims for a minimum tax rate for billionaires

The Biden administration has declared its plan to impose a minimum tax rate of 20% on income and unrealised gains on households worth more than $100 million. The plan would raise the effective tax rates faced by the wealthiest 0.01% of US households.

Anyone paying an effective rate lower than 20% would have to pay a top-up tax. The US government estimates that the minimum rate could raise as much as $360 billion over the next decade. The proposal will come up against opposition in Congress, though President Biden has his allies.

Senator Ron Wyden, Democratic chair of the Senate Finance Committee, supports the minimum income tax rate. “There’s no way to fix our broken tax code without getting at the problem of billionaires avoiding taxes for decades, if not indefinitely,” said Wyden.

However, the Democrats lack a strong majority in Congress to rush through such proposals without making serious concessions. The Biden administration has struggled to turn its ambitions into reforms for this reason.

The November 2022 mid-term elections could make matters worse if the Democrats lose rather than make gains. So, the Biden administration is rapidly running out of time to win crucial battles to secure tax reform.

Next week in ITR

ITR will be looking at how businesses are responding to the US Treasury proposal to replace the base erosion anti-abuse tax (BEAT) with the under-taxed payments rule (UTPR). The Tax Cuts and Jobs Act (TCJA) may have been a landmark in US tax reform, but it was not the end of reform.

Meanwhile, the Celltrion case in South Korea has tax implications for the pharmaceutical industry, particularly when it comes to transfer pricing arrangements and audits. Celltrion played a key role in tackling COVID-19 in South Korea, but this has not absolved it from scrutiny.

At the same time, UK businesses are preparing for the next stage of the Making Tax Digital project, which will apply to all VAT-registered businesses going forward from April 1, and not just to companies above the UK VAT threshold The UK project to digitalise VAT is just the start of digitising every area of tax compliance.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.

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