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Crypto Regulation Update: Will India Cope With More Taxes?

26 May 2022 15:45, UTC
Anirban Roy

The cryptic attitude of the authorities and the interest of global crypto players in the country have left over 100 million Indian crypto investors perplexed. Over the 30 percent TDS (tax at source) from trading on all virtual digital assets, including cryptocurrencies and NFTs, the state would impose a tedious 1% tax on the transfer of each asset starting July 1, 2022.

The Finance Minister of India asserted earlier that the 1% TDS is not an additional or new tax; instead, it would help people track it and later reconcile with the total tax to be paid to the government. However, industry experts claim that the TDS could impact liquidity and threaten crypto exchanges by reducing VDA traders working capital and minimizing their ways of making profits.

The Demoralizing Events for the Crypto Aficionados

The financial departments of the state are also marching forward with a cold shoulder to discourage the citizens from crypto trading.

For instance, the securities and exchanges board (SEBI) has recently forewarned celebrities and sports persons to avoid endorsing or promoting cryptocurrencies or crypto exchanges. The authority has also propounded the advertising standards council of India (ASCI) to add "dealings in crypto products may lead to prosecution for possible violation of Indian laws such as FEMA, BUDS Act, PMLA, etc." in the crypto-related advertisement endorsement.

In another instance, top officials of the reserve bank of India (RBI) have told a parliamentary panel that the VDA could potentially undermine their capability to "determine monetary policy and regulate the country's monetary system." They have also claimed that cryptocurrencies have the potential to become an exchange medium, and they can threaten the state currency in both domestic and cross-border exchanges.

The officials have also claimed that the increasing adoption of cryptocurrency could lead to a partly dollar-driven economy since most cryptocurrencies are issued and controlled by other countries. The RBI officials are afraid that the perpetual growth of several cryptocurrencies could also encourage people to invest more into these assets, shrinking banks' lending capability.

Coinbase, Binance, and FTX – Snail Slow Movements

Recently the global crypto exchange Coinbase has halted its operation in India following an online payment debacle with authority. The NASDAQ-listed crypto exchange is in talks with the RBI and has plans to start its trading-related process soon in the country. Coinbase India Head Pankaj Gupta is rumored to move his base to the US for an undisclosed reason. Its official blog noted that the company, which had plans to triple its workforce in the country, has slowed down its hiring operations.

The other two head honchos of the crypto trading – FTX and Binance, are optimistic and gearing up to launch their operations in the country. Binance has recently started its hiring process but kept silent about its tentative launch. FTX, too, is moving at a similar pace with keeping a close eye on the state's regulatory steps.

Having an interest in a country with over 100 million existing crypto traders is quite natural. Moreover, once the government softens its stand on VDA trading, more global exchanges are likely to build their base there.

States Stand

Despite the uncompromising stand of the Indian central bank, state finance minister Nirmala Sitharaman has explained her trust in blockchain technology in several instances. Recently she stated that the government sees immense potential in blockchain technologies, and they have no intention to hurt its growth. But she is equally vocal about how cryptocurrencies are used for financing terrorism, money laundering, and other deceitful acts. She has also tipped that the regulation would take its course of time, hinting the state is positively looking for a law.

International Organization of Securities Commissions (IOSCO), an association of market regulators, is reportedly looking forward to an imminent single agency to regulate all cryptocurrency-related activities.