India’s cryptocurrency industry was “crippled” by the country’s controversial tax laws in 2022.
According to a recent report by Esia Centera Delhi-based tech policy think tank, Indian cryptocurrency investors have moved more than $3.852 billion (INR 32,000 crore) of digital assets from local cryptocurrency exchanges to international exchanges. These transfers were made as the nation announced a 30% tax on cryptocurrency revenue.
“Of this amount, a cumulative volume of $3,055 million was outsourced within six months of the current fiscal year“, states the report, adding that “about 1.7 million17 users have switched” from a domestic crypto exchange to a foreign equivalent.
The Indian government unveiled its crypto taxation plans in early 2021, announcing tax gains on cryptocurrency transfers at a rate of 30%. The country also disclosed a 1% withholding tax (TDS) on all crypto transaction refunds.
Initially, the news was met with optimismas many industry veterans have noted that the new laws would remove any ambiguity for banks and other financial institutions regarding cryptocurrencies, allowing them to provide financial services to the cryptocurrency industry.
However, the Esya Center report states that the Indian Virtual Digital Assets (VDA) industry is “crippled by the current fiscal architectureLeave speculation that all Indian cryptocurrency users will move into foreign exchanges with the current structure.
Experts noted that the 1% levy has hurt cryptocurrency liquidity in India, as it forces high-frequency traders to drastically reduce their trading in a bid to reduce taxation. The report also said that domestic exchanges lost 81% of their trading volumes in four months after the controversial 1% TDS rule was imposed.
“We expect a proportionately large negative impact on tax revenues, as well as a decrease in transaction tracking, which defeats the two main objectives of the current policy architecture. The current fiscal architecture could therefore translate into a loss of approximately $1.2 trillion in volume on local stock exchanges over the next four years.
Think tank suggested Indian officials raise TDS from 1% per transaction at 0.1%, which would put it on par with the securities transaction tax. They also recommended progressive capital gains taxes instead of the 30% flat tax.
India ranked fourth in cryptocurrency adoption determined by the 2022 Global Crypto Adoption Index of chain analysiswith $172 billion in cryptocurrency transactions between July 2021 and June 2022. The country has also seen growing investor interest in its growing Web3 ecosystem.
India has long maintained a tough stance on cryptocurrencies, arguing that the nascent asset class had no underlying value. Just last month, the governor of the Reserve Bank of India (RBI), Shaktikanta Das, has called on the country to ban cryptocurrencies completely.
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