The Indian government declared 30% tax on income from cryptocurrencies earned. Following this there has been a shift of crypto worth Rs 32,000 crore, between February to October, 2022, from domestic to foreign exchange.
The study was conducted by Delhi-based The Esya Centre and was named, Virtual Digital Asset Tax Architecture in India. Out of the total amount, 25,300 crores were outsourced in the first six months of 2022. It is also predicted that the kind of tax architecture that the country currently has might lead to a loss of 99.3 trillion USD of local exchange trade following in the coming 4 years.
“60.8 per cent of the fall in the volumes of Indian centralised crypto exchanges are due to domestic market conditions or the tax architecture in India during Feb-Oct 2022, and the conditions intrinsic to these exchanges,”
said the study.
Also read: Indonesia To Establish A New Crypto Exchange This Year
Shift from Indian Exchanges to Foreign
Domestic centralised crypto exchanges saw a 15% loss in trade volume in February and March 2022. They lost another 14% between April and June. Between July and October, they lost 80% of all trade volume. The 1% TDS provision becomes operative on July 1. Offsetting losses in cryptocurrency are no longer permitted as of April 1.
According to the report, there is evidence that Indian centralised exchanges will suffer as overseas centralised crypto exchanges gain popularity starting in February 2022. According to “solid evidence,” many Indian investors, about 1.7 million, shifted as a result of the local crypto tax architecture.
Also read: Celsius Network Reaches Bankruptcy Court, Crypto Contagion Still In Effect?
Downloads of local cryptocurrency exchange apps decreased 16% between July and September. However, downloads for currency exchanges increased.
“We find that the main (unintended) impact of the policy is the offshoring of domestic business and liquidity to foreign exchanges. Therefore, we anticipate a commensurately large negative impact on tax revenues, as well as a decrease in transaction traceability – which defeats the two central goals of the extant policy architecture,”
the study added.
The downfall of Crypto in 2022
The global crypto market has seen a tumultuous year, definitely the worst year for cryptocurrencies. The total market cap fell from 2 trillion USD in 2021 to 819 billion USD on 4 January, 2023. The year saw massive collapses including the exchange FTX. The price of the largest crypto token, Bitcoin, has seen a dip of 70% since its all time high in November 2021.
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