According to a new report by a technology policy think tank in New Delhi, the country’s most divisive crypto policy—a 1% transaction tax withheld at source—needs to be reduced to 0.01% in order to assist the government in fulfilling its objectives of increasing revenue and enhancing transparency.According to a report by the Esya Center, the tax, known as TDS, is a type of income tax that has caused up to 5 million cryptocurrency dealers to relocate their transactions abroad and has potentially cost the government $420 million in revenue since it was implemented in July 2022.
Going beyond the group’s previous report that found Indians shifted over $3.8 billion in trading volume from domestic to foreign cryptocurrency exchanges following the announcement of controversial crypto rules, the findings in the “Impact Assessment of Tax Deducted at Source on the Indian Virtual Digital Asset Market” go even further.They demonstrate how the tax, at least partially, fell short of one of its declared objectives: taxing the wealthy.
“While the VDA market in India is burgeoning, the benefits of the same are being reaped by offshore exchanges,” said Vikash Gautam, the report’s author, referring to virtual digital assets. “Data shows that two likely policy objectives of the tax – to curb speculation and create transparency around transactions – have not been achieved.”
The administration of Prime Minister Narendra Modi announced in February 2022 a 1% TDS on all transactions and a 30% tax on cryptocurrency profits.The more contentious of the fees, TDS, was introduced with the goal of improving traceability inside India’s cryptocurrency ecosystem, according to Finance Minister Nirmala Sitharaman at the time.Local and global stakeholders expressed concern that it might bring about the industry’s demise, and in the months that followed its introduction, Indian cryptocurrency traffic plummeted, pushing nearly all significant exchanges into a state of survival.
Government officials have been beseeched multiple times by representatives of the domestic business to reduce the taxes.According to the study, which examined transaction volumes from 13,000 peer-to-peer (P2P) traders and polled executives of cryptocurrency exchanges, the goal of TDS was not only to track transactions but also to dissuade “speculative activity.”
The government was also told by the study to make it clearer whether TDS is applicable to offshore platforms.
“It just isn’t enforceable, as per stakeholders,” Gautam said in an interview. “It is possible to be done with international cooperation, but we do understand it is a long process. Some of the other countries have some arrangements with international exchanges to track that.”