India’s crypto industry has been “crippled” under the country’s controversial tax laws in 2022.
According to a new report by Esya Centre, a Delhi-based technology policy think tank, Indian crypto investors have moved over $3.852 billion (INR 32,000 crore) worth of digital assets from local to international crypto exchanges since February last year, when the nation announced a 30% tax on income from cryptocurrencies.
“Of this, cumulative volume of $3,055 million was offshored within six months of the current financial year,” the report said, adding that “an estimated 17 lakh users switched” from domestic crypto exchanges to foreign counterparts.
As reported, India’s government unveiled its crypto tax plans in early 2021, announcing tax gains from crypto transfers at a 30% rate. The country also revealed a 1% tax deduction at source (TDS) on all crypto transaction redemptions.
Initially, the news was met with optimism as many industry veterans noted that the new laws would remove any ambiguity for banks and other financial institutions regarding crypto assets, allowing them to provide financial services to the crypto industry.
However, the Esya Centre report now claims that India’s Virtual Digital Asset (VDA) industry is “crippled under the current tax architecture.” It claimed that all Indian crypto users will move to foreign exchanges under the current structure.
Experts have noted that the 1% levy has hurt crypto liquidity in India as it forces high-frequency traders to dramatically reduce their trading in a bid to trim taxes. The report said that domestic exchanges lost 81% of their trading volumes in four months after the imposition of the much-debated 1% TDS rule. It added:
“We anticipate a commensurately large negative impact on tax revenues, as well as a decrease in transaction traceability – which defeats the two central goals of the extant policy architecture. The current tax architecture may lead to a loss of approximately $1.2 trillion of local exchange trade volume in the next four years.”
The think tank suggested that Indian officials show change the TDS from 1% per transaction to 0.1%, making it at par with the securities transaction tax. They also recommended progressive taxes on gains instead of the flat 30% tax.
India ranked fourth in crypto adoption in Chainalysis’ 2022 Global Crypto Adoption Index, with a whopping $172 billion in cryptocurrency transactions between July 2021 and June 2022. The country has also seen increasing investor interest amid its growing Web3 ecosystem.
India has long maintained a harsh stance toward cryptocurrencies, claiming that the nascent asset class has no underlying value. Just last month, the governor of the Reserve Bank of India (RBI), Shaktikanta Das, asked the country to completely ban cryptocurrencies.
Credit: Source link
