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MCX refutes charges of exchange misuse for money laundering via ‘Sikkim route’

The Multi Commodity Exchange (MCX) has refuted all allegations of money laundering and tax evasion by traders registered in Sikkim, stating that the transactions concerned were done through registered PAN cards, the holders of which filed income tax returns regularly.

The Enforcement Directorate (ED) wing at Gangtok sought preliminary information from the exchange, in the wake of the reports.

The Multi Commodity Exchange (MCX) has refuted all allegations of money laundering and tax evasion by traders registered in Sikkim, stating that the transactions concerned were done through registered PAN cards, the holders of which filed income tax returns regularly.

The question of evasion of tax and money laundering does not arise because tax exemption is only allowed for Sikkimese residents (individuals) as per their citizens register, and not for firms or LLPs, it said. The contribution of individuals to MCX trade was only 0.01% in 2020 and hasn’t grown much from that level, said a MCX spokesperson.

According to some reports, although PAN is compulsory for all MCX trade and trading on the platform attracts 30% income tax and stamp duty, since Sikkim residents enjoyed exemption from Sebi, they were being used as proxy by traders from other states, who were indulging in a money laundering racket.

The Enforcement Directorate (ED) wing at Gangtok sought preliminary information from the exchange, in the wake of the reports.

The majority of trade on MCX from Sikkim happens by Limited Liability Partners (LLPs) or companies and they have not been exempted from income tax. “They are bound to pay income tax wherever they are registered in India,” the MCX spokesperson said.

Trade on MCX from Sikkim increased to 5.46% over the last two years as several companies availed the stamp duty exemption. The exemption is provided by the state, similar to GIFT city in Gujarat.

“There is nothing wrong with the stamp duty exemption. The state provides the exemption to promote trade in its region,” said Narinder Wadhwa, president of Commodites Participants Association of India.

The Finance Department of Sikkim had issued an email on July 7, 2020, stating that the Indian Stamp Act,1899, is not yet extended to Sikkim, which has its own Sikkim Court Fee and Stamps on Document Rules, 1928. Accordingly, the Department of Economic Affairs, New Delhi, issued a letter on August 19, 2020, to Sebi asking them not to collect stamp duty from the state of Sikkim.

MCX issued a circular on August 19, 2020, stating that stamp duty should not be collected from the state of Sikkim. “There seems to be no revenue loss to Sikkim as Sikkim itself did not want any stamp duty,” Wadhwa said.

Spokesperson of Valley Distributors LLP, one of the firms named in the issue and which have also traded from Sikkim on MCX said it was known to the assessees and their CAs that no tax exemption is available after 2008. Also, an individual cannot start living in Sikkim and enjoy tax exemption. It is available to a pure Sikkimese, whose name is recorded in the Register of Sikkim Subjects by the government in 1975 & 1991 and a direct descendant.

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