From April 1 this year, the 30 per cent tax on virtual digital assets such as cryptocurrencies became applicable. While some had said that this by itself will not cause much of a dent to the crypto industry in India, the initial data is on the contrary. Most crypto exchanges in India has seen a big drop in volume and domain traffic, according to data by Crebaco Global, a crypto and blockchain market research firm.
In just the first four days of the 30 per cent tax becoming applicable, the volume dropped by $6,92,092 (about Rs 5.19 crore; or 44 per cent) compared to the volume on March 31, 2022.
The top exchanges felt the pain—WazirX’s volume saw a fall of 40 per cent; CoinDCX, 52.91 per cent; Bitbns, 8.9 per cent; and Zebpay, 76 per cent, according to Crebaco data.
Many crypto industry experts were expecting something like this but they are hopeful that the slide will not continue for long.
Two Faces Of The Coin: Hurdle And Acceptance
Sidharth Sogani, CEO of Crebaco Global, says the numerous taxes are a hurdle. “The 30 per cent flat tax, not being able to set off losses in the same category, TDS (tax deducted at source) and GST increase not only the compliances for small investors but also restrict growth of the ecosystem. As per a poll conducted with 97 blockchain developers, most of them said they are considering relocating abroad,” he says.
Others feel that taxation has increased visibility and acceptance of virtual digital assets. “The crypto/NFT (non-fungible token) taxation has been a boon more than a bane,” says Ramkumar Subramaniam, CEO of GuardianLink, the platform that launched actor Amitabh Bachchan’s NFT collection. There is a pronounced increase in the awareness about NFTs and crypto, at least with respect to studying taxation. “The taboo of hazy legality surrounding cryptos has completely disappeared thanks to the taxation. The current dip in NFT trading can be attributed to a general market trend; we can’t pinpoint on the introduction of taxation,” says Subramaniam. But the taxes are on the higher side, he adds.
“While we cannot deny that the tax percentage on cryptocurrencies is a bit on the exorbitant side, we are expecting that the government will come up with solutions as the market grows and expands,” adds Subramaniam.
Long-Term Investors Will Stay
India has over 10 million crypto users, the second highest in the world, according to Chainanalysis (Vietnam is first).
“We are a retail platform and haven’t seen an immediate and significant drop in our trading volume since most of our investors are seeing cryptos as an asset that appreciates over time,” claims Ashish Singhal, founder and CEO of CoinSwitch Kuber. However, taxes do eat up capital and margins, he adds. “High-frequency traders provide liquidity in the crypto market, enabling efficient buying and selling of assets. These traders operate on extremely thin margins, so locking up their capital with high TDS will restrict their ability to operate, which will lower market liquidity and eventually impact retail investors,” says Singhal.
The crypto industry is hoping the fall is short-lived and will recover soon. While trade volumes have indeed been impacted, says Vikram Subburaj, CEO of Giottus crypto exchange, “we are waiting for a clear trend to emerge from the data as we believe this is a temporary phenomenon. The uptick in global prices of key crypto assets has already made some investors buy back the assets they sold earlier. Long-term investors are still invested in crypto and are holding on to their assets.”
A way forward could be that crypto exchanges make an effort to educate consumers about the new tax rules, says Sogani. “This may help increase volumes. But the pivotal part right now, to increase volumes and users, would be a relaxation on the taxation policy to some extent,” he adds.