Indian Government Recovers $12.6M in Unpaid Taxes from Crypto Exchanges
Nearly two months since the Government of India introduced a flat crypto tax rate of 30%, it’s revealed that the nation’s crypto exchanges paid the cost of increased scrutiny.
On March 28th, the Indian Minister of State for Finance, Pankaj Chaudhary, relayed to the Indian Parliament that 11 crypto exchanges were targeted for tax evasion. Overall, they evaded $10.7 million (Rs 81.54 crore). With added interest and penalties, this figure climbs to $12.6 million (Rs 95.86 crore) in total.
These exchanges were investigated for GST (Goods and Services Tax) evasion which is equivalent to VAT (value-added tax). For comparison, although there is no official data on the size of the Indian crypto market, it is estimated to be around $5.37 billion (400 billion rupees). In the written missive to the Indian parliament, Chaudhary also noted that the government doesn’t collect crypto exchange data.
Crypto Remains in the Gray Zone for India Despite 30% Flat Tax Rate
India’s 2022 Budget Bill for 2022 introduced a 30% tax rate (from April 1st) on virtual digital assets (VDAs). To make matters worse, it doesn’t allow for any leeway except for the acquisition cost of virtual assets, which cannot include the mining cost. In practice, this means that a 100 rupees profit from crypto income trading would incur not 30, but 42 rupees when surcharge and cess are added. This effectively puts a tax burden of 42% on crypto investors.
Cess is an Indian peculiarity in that it is a tax on tax, while surcharge is a fee on paid tax. It is likely that aggressive taxation is followed because 4% of Indian taxpayers account for 60% of India’s entire tax revenue. Another confusion involved with the recent bill is that losses from one VDA transfer cannot be adjusted against profits from other VDA transfers.
However, Minister Chaudhary clarified that only recently, on March 21st. In no uncertain terms, this is a stunning blow to the Indian crypto industry. Initially, the burdensome bill was framed as a path toward crypto legitimization, but with that exceptional provision, the bill could be poised to stifle growth.
“Treating profits and losses of each market pair separately will discourage crypto participation and throttle the industry’s growth. It’s very unfortunate, and we urge the government to reconsider this”
In practical terms, such a rule forces crypto traders to calculate the tax rate for each token pair being traded. Needless to say, when faced with such rules, investors tend to ditch official crypto exchanges and go to peer-to-peer (P2P) platforms without know-your-customer (KYC) rules. In turn, this would defeat the purpose of the bill.
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Is India’s CBDC Project, the Digital Rupee, More Important than Crypto Industry?
As both the EU and the US prepare their own regulations, it is prudent to avoid India’s stifling overreach. According to Anshul Dhir, COO of EasyFi Network, such regressive rules are bound to trigger a brain drain that only further depletes the already small paying tax base.
“Not only will this discourage people in the web3.0 space, it is bound to effect an exodus of smart and talented entrepreneurs out of the country. Part of which has already begun.”
However, India’s financial establishment may be looking to enact such measures for the purpose of bolstering its upcoming CBDC launch this year. After all, before China launched its Digital Yuan, its Central Bank engaged in a series of crypto and mining bans, creating a selloff pressure on Bitcoin and eventual miner exodus.
With India’s mining participation rate minuscule as it is, which cannot be even excluded from profits, it appears that India is betting on the Digital Rupee to grow its digital economy.
Do you think Western governments will adopt similar discouraging rules when their own CBDCs are close to launching? Let us know in the comments below.
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