Terra network coin holders in India are facing a “double whammy” following the LUNAC and UST crash last month – and could be hit with 30% tax bills from the recent LUNA 2.0 airdrop.
The genesis airdrop was made on May 30, with LUNAC holders distributed tokens now known as LUNA. However, investors in India aren’t as fortunate, due to new tax laws that came into force in April.
Although the text of the law does not specifically address airdrops, and contains “vague” passages – Jay Sayta, a technology and gaming lawyer, was quoted as saying by Bloomberg – this would likely not stop the taxman. In fact, this very ambiguity could work in the tax body’s favor, he opined.
Sayta was quoted as stating:
“The wordings in the law are so vague, including the definition of virtual digital asset and the definition of transfer, that it would be open to litigation of challenge by the tax department. They normally consider the most aggressive view possible with a view to collecting higher taxes, notwithstanding the fact that such a view may result in absurdity.”
The law states that the “transfer” of what lawmakers termed “virtual digital assets” should be taxed at a flat rate of 30%. Tax officers are, the lawyer added, likely to see any coin distribution as income – and thus subject to taxation.
Rajagopal Menon, the Vice President of the WazirX crypto exchange, which is owned by Binance, stated that over 160,000 investors held LUNAC on the exchange on May 9, and “by May 15 the number grew by 77% in India.”
An Indian crypto tax advisor was also quoted as stating that the airdrop “may fit into the existing definition of gifts” – meaning that the flat 30% tax “may not apply.” However, as gifts are also subject to income-graded tax, many would still likely face a bill, even if they could avoid the 30% levy.
Further, selling the tokens could also prove problematic, with the experts opining that a flat 30% tax “will be applied on the incremental income earned regardless how the tokens are categorized” should LUNA rise in value.
Meyyappan Nagappan, a digital tax expert at the legal firm Nishith Desai Associates, was quoted as explaining that in cases where people had received tokens worth more than around USD 644 and this was “treated as gift,” they would “have to pay taxes on it.” However, the lawyer added, “by the time they sell it – if the price falls – then you’ll actually [receive less] money.”
Instead, Nagappan warned:
“You may actually go more out of pocket in paying taxes than what you recover. That is the worst case scenario for them as Luna 2.0 was actually issued [with the intention to compensate [investors].”
Meanwhile, in South Korea, a group of 104 investors who are attempting to sue the LUNA mastermind Terraform Labs on grounds of fraud have received mixed news from experts. Some legal industry observers have claimed that in what will become a courtroom battle between developers and investors, the latter will struggle to prove intent to deceive.
However, Donga Ilbo quoted a leading academic, Kim Seung-joo, a Professor at the Graduate School of Information Security at Korea University, as pointing out that numerous experts had “warned of loopholes in” Terra algorithms.
An official from LKB & Partners, one of the legal firms representing a group of South Korean investors, was quoted as stating:
“Failing to properly notify the public of system design errors or defects constitutes a form of deception.”
The same report quoted an unnamed financial regulatory body official as stating:
“There will be no difficulty in proving [in court] that Terra/LUNA was not a sustainable system based on what has already been revealed.”
Source: Cryptonews
