India’s finance minister, Nirmala Sitharaman, presented the national budget in parliament, maintaining the status quo regarding the controversial Tax Deducted at Source (TDS) policy affecting the crypto industry.
The announcement came as no surprise, given the government’s persistent stance on the matter, despite efforts from the domestic crypto sector and recommendations from a prominent think tank advocating for a reduction in the TDS.
Persistent taxation woes
The budget announcement, which adheres to India’s usual taxation framework, was delivered amid subdued expectations within the financial sector. The looming general elections, scheduled for the next two months, typically result in an interim budget focused on financing immediate expenses rather than a comprehensive overhaul of taxation policies.
A more comprehensive budget is typically expected in July, after the election results are determined, with current polls indicating the likely return of Prime Minister Narendra Modi and his Bharatiya Janata Party to power.
The crypto industry in India has been fervently urging the government to reduce the 1% TDS rate to a mere 0.01% since its initial introduction two years ago. This taxation policy has forced Indian crypto exchanges into survival mode as they strive to extend their financial runways in response to the 1% TDS levy.
Rajagopal Menon, Vice President of cryptocurrency exchange WazirX, highlighted the potential benefits of integrating long-term financing provisions for domestic crypto projects into the government’s agenda.
He emphasized India’s pivotal role in the ongoing crypto revolution. He expressed hopes that the government would consider this perspective along with the industry’s longstanding request for a significant reduction in TDS rates to 0.01% and the offset of losses for traders.
A costly exodus of crypto traders
The contentious TDS policy, introduced in July 2022, levies a 1% tax on all crypto transactions. This move has prompted five million crypto traders to relocate their activities offshore. This mass exodus has come at a significant cost to the Indian government, potentially depriving it of approximately $420 million in revenue, according to a study conducted by the Esya Centre.
Despite the adverse impact of the TDS policy on revenue, the government has refrained from reducing the tax rate over the past two years. Instead, it adopted a more punitive stance last month, taking action against offshore crypto exchanges. This regulatory crackdown prompted a return of crypto activity to Indian exchanges.
Industry perspectives and hope for the future
The crypto industry remains cautiously optimistic about the prospects of change in the government’s stance on taxation. While the latest budget announcement did not bring about the desired reduction in the TDS rate, industry players are hopeful that their persistent lobbying efforts will eventually yield favorable results.
In light of the government’s focus on the digital public infrastructure and its commitment to fostering innovation, stakeholders believe integrating provisions for long-term financing domestic crypto projects is essential. They contend that India stands at a critical juncture in the global crypto revolution and that supportive policies could further enhance the country’s role in this rapidly evolving landscape.
As the crypto industry continues to advocate for a more favorable tax environment, it remains to be seen whether the Indian government will reconsider its taxation policies and align them with the aspirations of the domestic crypto sector. The industry’s plea for a 1% TDS rate reduction to 0.01% and the possibility of offsetting losses for traders remain central to their agenda.
Source: https://www.cryptopolitan.com/india-maintains-controversial-tax-policy/