Consumer org COF seeks probe into activities of online gaming firm RARIO

Consumer Online Foundation, a consumer rights organisation, has written to the finance minister to investigate the activities of a cricket collectable and gaming platform, RARIO, for alleged violation of tax laws with respect to cryptocurrencies, an allegation denied by the company.

The letter by Consumer Online Foundation (COF) alleged that RARIO is engaged in unfair trade practices that infringe on the rights of consumers.

RARIO refers to itself as a company engaged in the buying and selling of digital player cards and does not disclose on its website that it is in reality an NFT and cryptocurrency platform, the COF alleged.

However, RARIO said, "We adhere to all the KYC requirements and fully comply with the applicable laws, including taxation."

The letter alleged that the company has been engaging in unethical marketing practices and misleading customers in all of its transactions.

"Customers purchase player cards in either INR or USD currency, which are loaded into their 'RARIO wallet', without realising that they are essentially buying cryptocurrency. CIRCLE, a company that handles payments on behalf of RARIO, serves as an on-ramp off-ramp service provider that converts incoming Fiat (INR or USD) to USDC, a cryptocurrency. Such transactions have multiple negative impacts on unsuspecting consumers," it said.

As USD Coin (USDC) is a cryptocurrency, according to the rules of the Government of India, it said, the tax must be paid on transfers to virtual digital assets (VDAs), and users must provide a proof of payment.

However, it alleged, because RARIO's INR to USD to USDC to NFT to USDC to USD to INR transaction route is unknown to users, they are unable to account for the VDA tax that the Government of India requires.

USDC, which is pegged to USD, meaning that capital gains tax applies to changes in value to INR and gains made through NFTs.

However, it said, because users are unaware of the conversion, they are unable to properly account for the 30 per cent tax on crypto profits, it said, adding that this situation could place the burden of avoidable tax liabilities and prosecution on unsuspecting consumers.

Besides, a 1 per cent Tax Deducted at Source (TDS) on the sale of crypto assets exceeding more than Rs 50,000 in a single financial year.

As per the Finance Ministry guidelines, entities dealing in virtual digital assets (VDAs) will now be considered 'reporting entity' under the Prevention of Money Laundering Act (PMLA) and need to maintain KYC details or records of documents evidencing the identity of its clients and beneficial owners, it said.

The fact that users can deposit and trade without undergoing any user verification, such as PAN or other OVDs (Officially Valid Document) indicates, that RARIO is not complying with anti-money laundering laws, it alleged.

Additionally, it alleged, users can send money overseas without providing any identification for deposits, which could hinder the government's efforts to recover any dues owed to Indian consumers.

"This lax approach to AML laws poses a significant challenge for the government in preventing money laundering and tracking the flow of funds," it said.

COF founder Bejon Kumar Misra alleged that RARIO is facilitating international transactions under the Liberalized Remittance Scheme (LRS) of the Foreign Exchange Management Act (FEMA) 1999, without any transaction limits.

This is concerning under FEMA regulations, as funds are leaving India without using authorised routes such as LRS, which lays down guidelines for outward remittance from India, he added.

Based on the initial study, he said, "We have requested the Prime Minister and the Finance Minister to urgently investigate the matter."

The government should commission a thorough investigation to protect the interests of consumers and direct the concerned entities to not only cease illegal activities but also pay damages and compensation to consumers as per existing laws to be decided by the regulators, Reserve Bank of India, and Central Consumer Protection Authority, he requested.