Indians moved cryptos to foreign exchanges in 2022
Research shows that India’s new tax policy has driven the country’s cryptocurrency users away from national exchanges over the last year.
According to a new report from the Esya Centre, Indian citizens have moved over $3.8 billion in trading volume from local to international cryptocurrency exchanges since the country announced new tax rules for blockchain-based digital assets in February 2022.
Citizens have moved $3.8 billion worth of crypto to foreign exchanges
The study, which provides the first monetary estimate of the impact of India’s crypto tax policy on domestic exchanges, found that domestic exchanges lost 81% of their trading volumes in the four months following the implementation of a 1% tax deducted at source (TDS) rule.
The report also predicted that centralized exchange businesses could become unviable in India if the current trend continues, and could lead to a loss of approximately $1.2 trillion in local exchange trade volume over the next four years.
It also found that India’s virtual digital asset (VDA) industry is withering, and most VDA users in the nation will move to foreign exchanges.
The Esya Centre thinks changing the TDS from 1% per transaction to 0.1%, is a good idea, and would bring it in line with the securities transaction tax. Allowing losses to offset gains may also help, and establishing progressive taxes may be more attractive than the current flat 30% tax.
The new findings could pressure authorities to clamp down on outflows through cryptocurrency that adds to India’s current account deficit, which is currently at an all-time high of $36.4 billion. As a current account deficit nation, India needs money to flow in rather than out to offshore exchanges that bypass traditional banking channels.
India announced crypto tax policy in February 2022
In February 2022, the Indian Finance Minister, Nirmala Sitharaman, announced a 30% tax on any income from the transfer of virtual digital assets. At the time, Sitharaman also stated that the digital rupee, India’s central bank digital currency (CBDC), is expected to be launched in the months that followed.
During her budget speech, Sitharaman stated that “there has been a phenomenal increase in transaction in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”
She discussed the adoption of CBDCs, stating that the “digital rupee” will be “issued using blockchain and other technologies; to be issued by RBI starting 2022-23. This will give a big boost to the economy.”
According to the research, it is possible that the current Indian crypto tax architecture may have a “commensurately large negative impact on tax revenues, as well as a decrease in transaction traceability – which defeats the two central goals of the extant policy architecture.”
