India has continued in its hawkish stance on crypto, and while most people expect the government to introduce crypto-friendly rules, Nischal Shetty, CEO of India-based crypto exchange WazirX expects the opposite. According to him, the hefty tax regime will likely last longer.
India Records Significant Drop In Trading Volume
In February 2022, during the budget presentation, India announced a 30% tax on revenue from cryptocurrencies. Also, the government said investors will pay a levy of 1% on all assets sold as tax deducted at source.
Meanwhile, the high taxes increased transaction costs, causing market makers and large investors to pull back on their activities. As a result, there was a significant drop in trading volumes on crypto exchanges.
Furthermore, reports revealed that the high tax deduction led to a massive decline in trading volumes on local crypto exchanges in 2022.
In the latest interview with Bloomberg, WazirX’s CEO Shetty expects this to continue as he believes India’s door will remain shut on crypto for at least two years.
Shetty said:
I don’t think we’ll see any immediate reduction in TDS since there have been no formal discussions between the industry and lawmakers specifically around it.
While he’s not optimistic about the tax reduction, Shetty is hopeful that India will make a move to introduce more welcoming crypto policies.
Other jurisdictions, like Dubai, Hong Kong, and the European Union, are ahead in providing regulatory clarity for crypto. Some crypto assets firms are starting to explore expansion opportunities in these countries, leaving behind crypto-hostile environments.
Therefore, this overseas migration might spur the government into seeking ways to establish a friendly atmosphere for crypto firms to thrive.
Indian Crypto Market Tumbles Amid Hawkish Regulatory Atmosphere
Several local crypto trading platforms in India have lost investors and customers to overseas platforms, mostly due to the 1% TDS. In a recent report, CoinDCX, an India-based exchange, said Indian crypto exchanges lost more than 2 million users between February and December 2022. This period coincides with when the Ministry of Finance announced the tax.
In addition, CoinDCX noted that overseas crypto trading platforms gained over 1.5 million users from India. Furthermore, Sumit Gupta, the CEO of CoinDCX, told Bloomberg via an email that his firm is lobbying the government to reduce the TDS from 1% to 0.01%. But he didn’t mention a specific time frame when this could happen.
While the tax cut seems possible, serious crypto entrepreneurs aren’t waiting till it happens. According to reports, WazirX’s CEO Nischal Shetty moved to Dubai to establish a new startup tagged Shardeum. According to Shetty, Shardeum is a blockchain that will compete with Ethereum and other blockchain networks.
Meanwhile, CoinDCX is also looking to explore overseas markets. It recently led a fundraising round in the Middle East and North Africa-focused crypto exchange, BitOasis.
Amid the tax ordeal and cost challenges, WazirX reduced its staffing. Also, in August 2023, other exchanges like CoinDCX and CoinSwitch slashed their workforce, citing market challenges.