India has been progressing towards crypto regulation in the present times. Earlier, the country was assumed to be banning crypto sooner or later, but it cleared its intention of not doing so. However, the tax regime in the country is something that has troubled participants and investors alike.
As per data from Esya Centre, a New Delhi-based technological research firm, Indians have moved over $3.8 billion in cumulative trading volume from local to international crypto exchanges due to the stiff crypto tax rules announced on February 1, 2022, during its annual budget session.
The report stated that a total of $3.852 billion (INR 32,000) was shifted during Feb-Oct 2022. In the words of the report:
“Of this, a cumulative volume of $3,055 million was offshored within six months of the current financial year.”
This is the first report that provides monetary estimates of the impact of India’s much-controversial crypto tax policy on domestic exchanges. The Indian government announced a 30% tax on crypto profits and a 1% tax deducted at source (TDS) on all transactions on February 1, 2022.
The 30% tax became effective from April 1, and the 1% TDS became effective from July 1 last year. The crypto industry had opined that such tax regimes would destroy the “liquidity” of the sector.
As per the report, domestic exchanges lost 81% of their trading volumes in four months after the imposition of the much-debated 1% TDS rule. In addition, it also stated that “an estimated 17 lakh users switched” from domestic crypto exchanges to foreign counterparts.
Several recent studies have highlighted that Indian crypto traffic took a nosedive as the government imposed its crypto tax policy. Still, it also further predicts that the “centralized exchanges would become unviable” if the present scenario persists.
The report also stated, “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.”
Further, it also calculated an approximate loss of $1.2 trillion to local exchange trade volumes in the next four years. The report also called for the digital assets industry to be crippled under the existing tax regime and that it would push all users to foreign exchanges.
The researchers have recommended the TDS should be changed from 1% per transaction to 0.1%, which would be at par with the securities transaction tax, along with progressive taxes on gains instead of the flat 30% tax.
The high taxes have been seen as problematic by the Indian Crypto Association as well. Todayq News reported that the Indian crypto advocacy group proposed to meet with the Indian Finance ministry regarding taxes and other significant issues.