Tax Fraud

💸 TAX RUG / FEE SWITCH (Tax Scam)

📌 Definition

Tax Rug is a type of scam in which the token contract allows the admin to apply buy/sell transaction fees (taxes) and redirect these taxes for personal gain.

These taxes are often disguised as:

• Buy/sell commissions (%),

• Liquidity contributions,

• Developer fees.

In reality, the fees are sent to a wallet controlled by the admin and later drained.

🔧 How It Works

Stage	Description
1. Launch	Token is launched with a low tax (e.g., 2–5%) on buys and sells.
2. Hype	Investors buy in; price increases.
3. Fee Switch	Admin increases the tax rate to extreme levels (e.g., 90%+).
4. Dump	When users try to sell, most or all of their funds are taken as tax.
5. Exit	Admin withdraws all collected taxes (tokens or native coins).

Another method:

• If the LP NFT is not locked, the admin can also remove liquidity, even if prices have dropped.

• This means the admin first takes 90% from the user via tax, then drains the remaining value via

📋Smart Contract Mechanisms Commonly Used

Function / Mechanism	Description
setBuyTax(uint256) or setSellTax(uint256)	Admin can change tax rates at any time.
feeReceiver address	All collected taxes are sent to this address, usually controlled by admin.
isExcludedFromFees(address)	Some addresses (admin, bots) are tax-exempt, while investors are taxed.
maxTxAmount, maxWalletAmount	Limits are set to make selling more difficult.
swapAndLiquify()	Automatically converts taxes to native coins and sells them, causing dumps.

🧮 Technical Example (Solidity)

function _transfer(address from, address to, uint256 amount) internal {
    uint256 taxAmount = amount * sellTax / 100;
    uint256 sendAmount = amount - taxAmount;
    _balances[from] -= amount;
    _balances[to] += sendAmount;
    _balances[feeReceiver] += taxAmount;
}

➡ This kind of code allows the contract to deduct up to 90% per transaction.

🛡️ Ways to Protect Yourself

Precaution	Explanation
Can the tax rate be changed?	Look for functions like setTax() in the code.
Where does the tax go?	Is feeReceiver a fixed, multi-signature, or admin-controlled wallet?
Is the tax rate visible on Etherscan?	Verified token contracts should clearly display fee parameters.
Test with small buy/sell transactions	Try trading a small amount on a DEX first.
Review audit reports	Ensure transfer logic and tax mechanisms are thoroughly reviewed.