When India’s Finance Minister Nirmala Sitharaman revealed the 2023-24 budget, she disregarded the requests of the cryptocurrency industry to cut taxes on digital asset trading and buying. It is difficult to overlook the virtual asset class in Parliament on Wednesday.
A year ago, India implemented a 30% flat tax on all cryptocurrency gains and on July 1, a 1% tax deduction at source, or TDS, on all crypto transactions exceeding 10,000 Indian Rupees (122 USD).
In addition, the country does not permit cryptocurrency traders to offset losses by investments in other sources for tax purposes.
“The Indian Union Budget 2023 made no changes to existing crypto taxes, leaving Indian crypto companies on the ‘Stairway to Heaven,'” Native chief executive Rajagopal Menon wrote with a humorous twist on the snub of the government. Menon is the Vice President of WazirX, India’s biggest cryptocurrency exchange based on trading volume.
He highlighted that taxes and the lack of a strong regulatory framework are hindering industry growth.
“Trading volumes on Indian exchanges may remain flat at the bottom. Last year was the worst year on record; any change will be for the better,” Menon said.
The taxes caused trading volumes to plummet as high as 90%, which has caused Indian Bitcoin exchanges to reduce income from trading fees. Research by the Esya Centre, a Native Tech policy think tank, estimates that $3.8 billion could have been moved offshore by Indian exchanges between February and October 2022 as traders sought to avoid taxation.
Unproductive?
Sumit Gupta, the chief executive of Indian CoinDCX, a cryptocurrency exchange, said in an interview last week that India’s punitive taxation on digital assets is backfiring as traders flee to the US. This is reducing tax income and costing the country more. If the taxes were lower, this would be possible.
The Economic Survey, India’s analysis of trends in the country and the guide to set the allocations of resources in the budget, is what enabled a first-ever analysis of the cryptocurrency trading in the country for 2022/23.
“The recent crash of crypto exchange FTX and the subsequent sell-off in crypto markets have highlighted vulnerabilities in the crypto ecosystem,” the report states.
“Crypto assets are self-referential instruments and do not strictly pass the test of being a financial asset because [they have] there are no intrinsic cash flows attached to them,” he said. “The geographically pervasive nature of the crypto ecosystem requires a common approach to regulating these volatile instruments,” she added.
The Native cryptocurrency and Blockchain industry are hoping that India will address the new asset class with more clear regulations and take advantage of its ongoing G20 presidency to collaborate with other countries.
“The regulatory vacuum and lack of accountability tend to allow bad actors in and leave everyday users and investors with little to no legal recourse,” Ashish Singhal, founder and CEO of Indian CoinSwitch, a cryptocurrency exchange, said on Twitter on Tuesday.
“With India’s G20 presidency, we hope that 2023 will finally be the year to establish a framework for cryptocurrencies.”
