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India’s Crypto Tax Pushes Traders to Foreign Markets • TechCrunch

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India’s crypto tax rules, which came into effect last April, have led local exchanges to cede the lion’s share of the market to those operated by foreign players, according to a new report.

Binance, Coinbase and other foreign exchanges held 67.6% of India’s crypto market share in October 2022, up from 50% in November 2021, according to New Delhi-based think tank Esya.

In the period between February 2022, when India unveiled its crypto taxation policy, and October 2022, $3.8 billion in trading volume shifted from national centralized exchanges to those operated at the foreigner, according to the report (PDF).

Indian exchanges including WazirX, CoinSwitch and CoinDCX lost 81% of their trading volume in four months between July and October, Esya said, attributing the trend to local TDS rules.

India is among the countries that have taken a rigorous approach to cryptocurrencies. It began taxing virtual currencies in April last year, levying a 30% tax on winnings and a 1% deduction on each crypto transaction.

The report claims that traders are turning to forex markets because they believe they will be able to hide their activities from local authorities. Many foreign exchanges, including Binance, offer peer-to-peer access and exit capability, allowing users to avoid having to transact with a company.

Additionally, many foreign exchanges, including KuCoin and Gate, allow crypto trading within certain capital limits (usually a few thousand dollars per day) without KYC details. Decentralized exchanges such as DYDX, by design, do not require any KYC. In the past, top executives of Indian stock exchanges have warned that India’s tax regime will force users to switch to unregulated entities.

“This implies that India not only loses its international competitiveness in the VDA (virtual digital asset) ecosystem, which is closely intertwined with several emerging technologies, but also the scarcity of liquidity which is important for concurrent economic value creation in the country,” Esya wrote.

“It is important to note that the implications of the current VDA architecture on government tax revenues are also unclear.”

The report urges the Indian government to reevaluate its taxation of crypto, suggesting that it at least waive the 1% TDS tax on transactions.

The vast majority of local authorities remain among the most vocal opponents of crypto. India’s central bank governor warned last month that private cryptocurrencies will cause the next financial crisis unless their use is banned.

The central bank said last week that India, under its current G20 presidency, will prioritize the development of a global regulatory framework for unbacked crypto assets, stablecoins and decentralized finance and will explore the possibility of [their] prohibition.”

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