$8.35 Billion Moved Overseas Following India’s 30% Crypto Tax
- India’s Finance Ministry imposed a whopping 30% tax on crypto earnings along with a 1% TDS on all transactions.
- Over $8.35 billion have been moved to foreign exchanges following the implementation of huge taxes between February and October last year.
- Taking into account P2P trades, the total shift of trade volume from local to foreign exchange platforms is around $9.67 billion.
- A total of $3.05 billion (Rs. 25,300 crores) left Indian cryptocurrency exchanges within six months of the current financial year.
India, which has the largest number of crypto investors in the world, has recently seen tightened regulations by the local government. In April last year, India’s Finance Ministry imposed a whopping 30% tax on crypto earnings along with a 1% TDS on all transactions.
Indian crypto exchanges, which have lost more than 90% of their trading volumes as compared to the previous year, have seen a massive drop in their users as a result of heavy taxes by the authorities.
A new report has estimated the value of cumulative trading that moved from centralized local trading platforms to foreign ones, following the announcement of a new tax regime in India.
On January 3, an Indian think tank on technology policy matters, Esya Centre, published a report titled “Virtual Digital Asset Tax Architecture in India: A Critical Examination,” revealing that around $3.85 billion (Rs. 32,000 crores) of cumulative trading volume moved from local exchanges to overseas platforms between February and October last year.
The study looks at the effects of the new taxes on the domestic crypto market that were announced in the Union budget 2022–23 on February 1.
It is interesting to note that of the total offshoring, a total of $3.05 billion (Rs. 25,300 crores) left Indian cryptocurrency exchanges within six months of the current financial year, after the new tax regime went into force on April 1 and continued until October 20, 2022.
If we take into account peer-to-peer trade, the total shift of trade volume from local to foreign exchange platforms is around $9.67 billion (Rs. 80,000 crores), the report revealed.
“Many Indian VDA users seem to be switching from domestic centralized VDA exchanges to foreign counterparts (an estimated 17 lakh users switched in the period analyzed), a trend visible starting February 2022 (i.e. following from the Union Budget announcement).”
Given the regressive nature of India’s tax treatment in comparison to other countries with massive VDA adoption rates, including the United States, the United Kingdom, South Africa, the Philippines, Brazil, and Vietnam, the Esya Center suggested several changes to the current tax policy.
To help curb the distortionary effect of TDS on the crypto industry, the report recommends a lower TDS as it also aims to enhance transaction tracking. Esya Center also suggested the government “reconcile tax rates vis-à-vis revenue maximization by ascertaining the optimal taxation point(s) through Laffer-Curve analysis,” further stating:
“Therefore, the government should adopt a progressive tax structure with differentiated rates for short term and long-term gains, in line with international best-practice.”
According to the report, the enormous levels of P2P trade indicate that India would also need to strengthen international coordination and institutional monitoring on VDA exchanges, such as a licensing regime, in addition to tax measures.
As per an earlier report, the Reserve Bank of India (RBI), tested the digital rupee in partnership with many banks and the wholesale Indian CBDC has failed to impress bankers who believe that there are no significant upsides of using e-rupee.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
