As with a lot of other industries, the crypto ecosystem looks forward to the 2023-24 union budget with hope amidst uncertain times. Some of our key asks include 1) a rationalization in crypto taxation and TDS deduction; 2) regulatory focus on consumer protection; and 3) recognition of compliant Indian entities that are building the digital infrastructure in India. We elaborate this below.
Crypto is gaining adoption
Despite a market downturn in 2022, crypto assets are gaining traction across India with an estimated 25-30 million investors who are parking some of their investments in this volatile but exciting sector. India is home to more than 450 Web3 start-ups and has the third largest Web3 talent pool in the world. The benefits of blockchain technology as an enabler of digital infrastructure is already recognized by companies and governments globally.
India has a thriving crypto environment but lacks well defined regulations on digital assets.
Taxation has revealed mixed results for the formal sector
In the Union Budget of 2022, the government introduced a 30 per cent tax on crypto profits marking a key step in recognizing the sector’s potential. In addition, investors are required to deposit a 1 per cent tax deducted at source (TDS) on all sales transactions. In its first full year of implementation, the government would have been able to identify income from crypto assets separately and quantify its impact in the overall scheme of things.
On the flipside, many investors have chosen to trade their assets in international exchanges that do not have a system to deduct 1 per cent TDS thus preserving their principal. Surely, the government didn’t anticipate the high share of such transactions. This has created an uneven atmosphere for local compliant exchanges that cooperate with regulatory bodies.
We believe that the government will look at this year’s budget as an opportunity to maximize crypto taxation revenue by incentivising trade in Indian exchanges. This can be done by reducing the TDS percentage to 0.1 per cent which will continue to maintain its tracking efficacy. Also, overall taxation can be further rationalized and augmented with the ability to offset losses in one asset over gains in another.
Meanwhile, most Indian exchanges have evolved to become more compliant.
Taking a cue from the government’s intention to safeguard consumer interests in crypto in 2022, many Indian exchanges have built a robust KYC procedure with enhanced due-diligence requirements accounting for anti-money laundering (AML) initiatives. All deposits and withdrawals are now trackable to each individual marking an easy way to negate fraudsters. This additional compliance puts us in par, we believe, with most banks in the country even without a well-rounded regulatory regime in place.
This is the right time for the government to build on this ecosystem of safety. They would have already recognized our efforts in bringing about the right order. A regulatory regime that defines and captures consumer interests in the sector will go a long way in building trust.
Crypto business need recognition and support
Finally, once the above aspects are addressed, a way to recognize and support legal compliant businesses will make us compete with international companies.
To increase the confidence of institutional and retail stakeholders, India will need a professional digital wallet infrastructure that businesses can use. RBI’s retail CBDC pilot has, so far, demonstrated good adoption. If our businesses are ‘licensed’ in some way by the government, we will be able to grow the formal sector with consumer interests at heart. Banks will also extend a welcome hand to meritorious crypto projects.
Overall, our challenge is to take the benefits of blockchain technology, be it crypto or DeFi, to the masses in an adaptable format. This needs immense support from the government. The Union Budget always holds hope and we believe there will be announcements that would also help arrest the entrepreneurial drain from the country.
Views are personal. The author is CEO, Giottus Crypto Platform
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