Despite higher taxation, India now second largest crypto market

  • October 26, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Despite higher taxation, India now second largest crypto market

Subject: Economy

Section: Monetary Policy

In News:  India remains among the top in crypto market adoption as per global report.

Key Points:

  • Even with 30 per cent tax on gains and TDS (Tax Deducted at Source) at the rate of 1 per cent, India remains among the top crypto markets in the world, a 2023 global report on crypto by Chainalysis says.
  • Chainanalysis, a US-based blockchain data platform has come out with its report ‘The 2023 Geography of Cryptocurrency Report.
  • According to the report India leads the world in grassroots adaptation as measured by Global Crypto Adoption Index.
  • India has also become the second largest crypto market in the world (US is no. 1) by raw estimated transaction volume, beating out several wealthier nations. The report pegged transactions in India at over $260 billion.
  • Crypto taxation in India:
    • Indian Tax Administration uses the term ‘Virtual Digital Asset (VDA)’ for cryptocurrency and NFT.
    • Effective from April 1, 2022, any income from transfer of VDAs is taxable at the rate of 30 per cent (plus surcharge and cess).
    • The government also introduced TDS on VDA, with effect from July 1, 2022.
    • Rate would be 1 per cent and would be deducted by any individual/HUF while buying any VDA.
  • Challenges to Indian crypto industry:
    • Uneven implementation of TDS is making it more difficult for home-grown Indian exchanges to compete.
    • To escape the high taxation Indian users are moving towards  international exchanges.
  • Hence it is recommended that local rules like TDS should be strictly enforced for all exchanges operating in a given country. Doing otherwise can create an environment of regulatory arbitrage that hurts the country’s native crypto industry.
  • India should align with the IMF and FSB recommended roadmap that was adopted during G-20.
G-20 / IMF-FSB Crypto Roadmap

  • Finance Ministers and Central Bank Governors (FMCBGs) of G20 nations under India’s Presidency adopted the roadmap for crypto regulation as proposed by International Monetary Fund (IMF) and Financial Stability Board FSB) in a synthesis paper.
  • The roadmap is not in favour of a blanket ban on crypto-assets, while it vouches for a comprehensive regulatory and supervisory oversight as a better option.
  • Regulation should address macroeconomic and financial stability risks.
  • It also pitched for using norms for money laundering to check the use of crypto assets for criminal and terrorist misuse.
  • Accordingly jurisdictions should implement the Financial Action Task Force (FATF) anti-money laundering and counter-terrorist financing (AML/CFT) standards that apply to virtual assets and virtual asset service providers.

Regulatory arbitrage

  • Regulatory arbitrage is a corporate practice of utilizing more favorable laws in one jurisdiction to circumvent less favorable regulation elsewhere.
  • This practice is often legal as it takes advantage of existing loopholes; however, it is often considered unethical.
economy India now second largest crypto market