Union Budget 2023: Imposition of a 30% Crypto Tax Had a Negative Impact

Cryptocurrency is a one-of-a-kind treasure in the Indian fintech landscape. India has rarely been successful in developing and growing local businesses and cutting-edge tech solutions in tandem with its Western counterparts.

Over the last two decades, India has made significant advancements in creating a strong IT industry. However, individuals have been sluggish to adopt and shape modern technologies, whether it is smartphones or semiconductors.

However, when it comes to cryptocurrency, local entrepreneurs have taken an unexpected route: they have created goods and services that compete with those of their worldwide counterparts. Even in the early days of cryptocurrencies, Indian platforms were able to flourish and meet the needs of millions of users.

India has produced unicorns in both the crypto investment and infrastructure industries. This has occurred in tandem with India's digital development. As a result, between July 2021 and June 2022, India accounted for 172 billion USD in crypto transactions, ranking India fourth internationally in terms of purchasing power parity adoption.

The previous year's Union Budget recognized this increased use by instituting a tax mechanism for VDAs. The budget provides much-needed clarification on cryptocurrency taxation. Aside from this relief, the tax regime that crypto investors faced was dissimilar to those of other asset classes.

Taxation and high TDS

The basic exemption, the distinction between long-term and short-term capital gains based on ownership tenure, and the opportunity for investors to carry forward or offset losses were all missing from the flat 30% tax on earnings. The 1% TDS on each sell transaction had a significant compounding effect on capital-rich high-frequency traders, who are the source of market liquidity.

After nearly a year, it is clear that these restrictive policies had the opposite effect intended. Rather than boosting openness and compliance in India's crypto transactions. They unwittingly encouraged customers to use grey marketplaces and offshore exchanges.

The severe consequences

As per a recent report by the Esya Centre and Taxsutra, domestic cryptocurrency companies will move about INR 32,000 crore in transaction volume to offshore exchanges between February and October 2022.

This has enormous implications, including lost tax revenue for the government, less oversight over bitcoin transactions, and dramatically increased consumer exposure to offshore risk. We hope that the government will reconsider and introduce taxes that encourage users to follow the law and stay inside our territorial jurisdiction. 

Also read: El Salvador has Limited Exposure to Bitcoin: Dante Mossi