India’s cryptocurrency sector might face a prolonged wait of up to two years before seeing a more relaxed taxation framework, according to Nischal Shetty, CEO of the domestic exchange WazirX.
The previous year witnessed the introduction of a 1% Tax Deducted at Source (TDS) on crypto trades by Indian regulators. This decision resulted in a marked decrease in trading volumes.
Such a tax increment led market makers and frequent traders to pull back due to the escalating transaction costs. One local exchange even linked a staggering 97% plunge in domestic trading volumes over a span of 10 months directly to this taxation.
Speaking to Bloomberg, WazirX’s CEO, Nischal Shetty, conveyed skepticism regarding any swift modifications to the TDS rate. He highlighted the current lack of formal dialogues between the crypto sector and legislative authorities as a primary reason for his reservations.
India to Play Catch Up in Regulating Crypto
This year, India has voiced its support for a globally coordinated stance on cryptocurrency regulations. However, nations like Hong Kong, Dubai, and the European Union have already taken the lead by formulating their distinct regulatory structures.
The primary objectives behind these regulatory moves are to protect investors and offer clear guidelines for digital asset enterprises. Given the intensified regulatory oversight in the United States, some of these companies are even mulling expansion to other jurisdictions.
Amidst this backdrop of ambiguity, Shetty maintains an optimistic view, anticipating India to move in the direction of a more accommodating crypto policy in the future, even if the specifics of such a policy remain undetermined for now.
The imposition of the TDS has prompted a notable shift in the preferences of Indian investors, with many diverting from domestic crypto exchanges to those based internationally.
CoinDCX, a competitor to WazirX, highlighted in a report from August that from February — when the tax was introduced — to December of that year, Indian platforms experienced a decline of over 2 million users.
Conversely, within that same timeframe, foreign exchanges reportedly drew in upwards of 1.5 million Indian clients, as per the estimates provided by CoinDCX.
“Purpose of Introducing TDX has Failed”
In a prior discussion with CryptoNews, Kiran Mysore Vivekananda, Chief Public Policy Officer at CoinDCX, commented on the counterproductive nature of the central government’s TDS on crypto. He pointed out that the intention behind introducing this direct tax was to deter individuals from investing in cryptocurrencies. Yet, contrary to this objective, the adoption of cryptocurrency in India has seen a surge. Vivekananda further highlighted data indicating that 18% of active users on the top five international exchanges hail from India.
Moreover, as per a previously referenced report by Chainalysis, India stands out as a frontrunner in embracing cryptocurrency across several metrics. The volume of cryptocurrency transactions in the country is also reportedly the second-highest globally.
