Indian crypto exchange trade down by Rs 32k cr since 30% tax kicked in

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Fol­low­ing the announce­ment of a 30 per cent tax on the income from cryp­to assets and one per cent tax deduct­ed at source in the Bud­get 2022, cumu­la­tive trade vol­ume worth Rs 32,000 crore shift­ed from Indi­an cryp­to exchanges to for­eign ones between Feb­ru­ary to Octo­ber, a study showed on Wednesday.


The cur­rent tax archi­tec­ture may lead to a loss of approx­i­mate­ly Rs 99.3 tril­lion of local exchange trade vol­ume in the next four years, the “Vir­tu­al Dig­i­tal Asset Tax Archi­tec­ture in India” study released by Del­hi-based think-tank The Esya Cen­tre said. 


Of Rs 32,000 crore, Rs 25,300 crore were off­shored in the first six months of 2022–23 (FY23).


“60.8 per cent of the fall in the vol­umes of Indi­an cen­tralised cryp­to exchanges are due to domes­tic mar­ket con­di­tions or the tax archi­tec­ture in India dur­ing Feb-Oct 2022, and the con­di­tions intrin­sic to these exchanges,” it added.


In Feb­ru­ary and March 2022, domes­tic cen­tralised cryp­to exchanges lost 15 per cent of their total trad­ing vol­umes. Between April and June, they lost anoth­er 14 per cent, and 81 per cent of all trad­ing vol­ume was lost between July and Octo­ber. The 1 per cent pro­vi­sion came into effect on July 1. From April 1, off­set­ting loss­es in cryp­to have also been disallowed.


“We find that the main (unin­tend­ed) impact of the pol­i­cy is the off­shoring of domes­tic busi­ness and liq­uid­i­ty to for­eign exchanges. There­fore, 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 study said.


From Feb­ru­ary 2022, the study said there was “clear evi­dence” of for­eign cen­tralised cryp­to exchanges gain­ing trac­tion at the cost of Indi­an cen­tralised exchanges. “That is, there is robust evi­dence that many Indi­an investors switched (approx­i­mate­ly 1.7 mil­lion) as a result of the domes­tic cryp­to tax archi­tec­ture,” it said.


Dur­ing July and Sep­tem­ber, down­loads of domes­tic cryp­to exchange apps fell 16 per cent (year-on-year). On the oth­er hand, down­loads for for­eign exchanges rose by a “com­men­su­rate” amount.


For the research, the think-tank used tax rate data on short-term and long-term gains, the applic­a­bil­i­ty of TDS, and the pro­vi­sion to set off loss­es for deriv­ing tax­able income. And data from India was com­pared with coun­tries with high cryp­to adop­tion rates along these three para­me­ters. The coun­tries were the US, UK, Cana­da, Ukraine, Brazil, Thai­land, Japan, Aus­tria, Sin­ga­pore, Malaysia, South Africa, Nether­lands, Switzer­land, Viet­nam and Philippines.


Apart from India, the cryp­to mar­ket saw a mas­sive sell-off in 2022. The total mar­ket cap has fall­en from over $2 tril­lion at the end of 2021 to $819 bil­lion on Wednes­day. Sev­er­al exchanges, includ­ing FTX, have filed for bank­rupt­cy. The price of Bit­coin, the largest cryp­to token by mar­ket cap, has fall­en over 70 per cent since its peak in Novem­ber 2021.


The study con­sid­ered data from three Indi­an exchanges, WazirX, CoinD­CX and Zeb­pay along with data from three for­eign exchanges Binance, Coin­base and Kraken.


CoinD­CX said that it has made a total pay­ment of Rs 41.33 crore towards under Sec­tion 194S as of Novem­ber 2022 and sup­ports the gov­ern­men­t’s efforts for devel­op­ment of the sec­tor. It has rec­om­mend­ed the gov­ern­ment to bring down to 0.01 per cent.


“As an Indi­an start-up cater­ing to Indi­an users, it is dis­heart­en­ing to see Indi­an poli­cies inad­ver­tent­ly push Indi­ans’ busi­ness over­seas, and leave Indi­an users vul­ner­a­ble to for­eign exchanges. Through our rep­re­sen­ta­tion for the upcom­ing Union Bud­get, we have sug­gest­ed that the rate of TDS be brought down to 0.01 per cent. We sin­cere­ly hope this request will be grant­ed,” Sum­it Gup­ta, co-Founder and CEO at CoinD­CX told Busi­ness Stan­dard.


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