According to a report by Livemint, India’s Ministry of Finance, led by Nirmala Sitaraman, appears to be working on a comprehensive “Good and Service Tax” GST, while providing clarity on the definition of the nature of cryptocurrencies and how they fit into the legal system.
The GST crypto tax plate also aims to design an indirect tax on crypto assets to act as a check against revenue loss for the Treasury due to the volatility of these assets.
The GST rate for crypto could range from 18 to 28 percent, according to the report.
“We are currently still discussing the applicability of the GST in the case of crypto assets. It is levied on services, so we need to see if crypto assets are declared as goods or services,” sources close to Livemint said.
“According to the details we have at the moment. GST is only charged on margin or service fees and not on the full value of the asset,” said Rajagopal Menon, Vice President of WazirX.
What does this mean for crypto traders?
“While taxing virtual digital assets is a welcome move, trade and investment have taken a significant hit since the government introduced a TDS compliance charge. Under the current TDS regime, traders (temporarily) lose 1% of their capital on each trade. An additional GST compliance burden could further discourage participation,” explained Anoush Bhasin, advisor and angel investor at KoinX.
The Indian government introduced a flat tax bracket and subsequent TDS for digital assets, including crypto, which dramatically reduced crypto trading volume. According to Nomics, a crypto data compiler, crypto trading volume in India has plummeted after April 1, 2022, as recorded by crypto exchanges such as CoinDCX, WazirX, and Zebpay.
The tax bracket introduced implied a 30 percent tax and 1 percent TDS on every crypto trade over 10,000 rupees in a year.
“We can see that since July 1st, after TDS regulation was rolled out in most Indian crypto exchanges, app installs and traffic on international crypto exchanges have increased,” Menon said.
Binance alone was downloaded over 750,000 times by Indian users in June and July alone, according to a data report by AppTweaks, an analytics firm.
And if a similar trend is seen after the new tax regime, it would encourage a similar slump in crypto trading in India.
“Everyone loses out as a result – the government loses tax revenue, all user data is stored abroad, Indian stock exchanges lose business and Indian consumers may unknowingly fail to comply with Indian tax laws,” Menon continued.
The news also comes at a time when heated debates over crypto continue with the RBI’s crypto-antagonistic stance, which it describes as a threat to India’s financial stability.
What to Expect
“A complicated tax regime will leave the Indian crypto ecosystem in limbo in the absence of overall regulatory guidance and government support,” Bhasin said. “Most of the industry participants are keen to operate or build from India as long as the regulator can provide an enabling environment,” he added.
The government is also looking into similar treatment of transactions such as mining or airdrops of crypto tokens.
“The crypto industry has always been pro-regulation. We are taking small steps towards crypto regulation; the taxes introduced in the budget were the first step. GST will continue to push this down the regulatory path. It must be stressed that tax rates must be reasonable.”
– Rajagopal Menon, Vice President, WazirX
India is an important crypto market as it dominates the global crypto adoption index, ranking in the top 10 alongside 154 countries including the US. Recently, the US also released an interim regulatory framework for digital assets like crypto and NFTs, which has been touted as a global template for a regulatory framework.
“In the short term, this could hamper development. However, we are confident that the Indian government will ultimately follow the regulatory and licensing path of countries such as Singapore, the US, the UK and Japan,” Bhasin said.
If the GST is applied to goods/services exchanged in the underlying transaction denominated in VDAs then this should be fine. If the GST were to be implemented on the VDA itself, it would seriously cripple the investment and trading markets and all participation.
– Anoush Bhasin, Advisor and Angel Investor at KoinX
Considering India’s emerging position as a crypto adopting nation and its contribution to world politics, the tax regime was once instituted to guide the way for many interest groups and startups in India.
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