Indian cryptocurrency exchange Coindcx is strongly urging the government to reconsider the 1% tax on crypto transactions that was imposed in 2022. According to Coindcx CEO Sumit Gupta, the tax has had a detrimental impact on domestic crypto trading activity and volumes.
Gupta points out that the tax has driven 95% of trading volume away from Indian exchanges to offshore platforms that are beyond the reach of regulators. The original purpose of the tax was to track and trace transactions, but this goal has been completely defeated. With the shift away from Indian exchanges, authorities have even less visibility into crypto trading by Indian citizens.
In addition to trading volumes declining, the tax has also led to a loss of liquidity and market makers on Indian exchanges. With higher trading costs, major market makers have exited local platforms, further disincentivizing trading activity. As a result, Indian exchanges remain muted even as volumes surge on global exchanges during the latest crypto rebound.
The impact on Coindcx itself has been significant. Gupta revealed that revenues are now around a third of pre-tax levels. The company was valued at $2.15 billion in an April 2022 funding round but has since cut 12% of staff due to declining volumes. At the same time, compliance costs have risen with new anti-money laundering regulations applied to crypto.
Earlier this year, the government introduced stricter penalties for crypto tax evasion but made no changes to the 1% tax in the 2023 budget. Gupta hopes that after the 2024 general elections, there will be more regulatory clarity and ideally relief from the current tax regime, which applies a 30% tax on crypto profits on top of the 1% TDS. While trading has declined domestically, adoption continues growing through offshore platforms and related crypto services.
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