India’s controversial 1% tax on crypto transactions has backfired, causing the country to miss out on an estimated $420 million in potential government revenue.
A new study found around 5 million Indian crypto traders moved their activity to overseas exchanges after the tax took effect in July 2022. This mass exodus denies India income from taxing profitable trades.
The tax was intended to increase revenue and transparency. But the high 1% rate deterred users, sending trading volumes plunging on Indian exchanges.
Researchers recommend lowering the tax to 0.01% to align with policy goals. The current tax only captures 0.2% of offshore exchange trading despite aiming to tax all activity.
The findings add to calls to reduce India’s tax burden stifling crypto adoption. With trading volumes rising globally, onerous taxes prevent India from capitalizing on crypto’s growth.
A more balanced taxation policy can maximize revenue while still encouraging economic activity. India’s crypto misstep shows the perils of overzealous regulation undermining innovation.
