According to a new report, India’s crypto tax law, which came into effect last April, led to local exchanges ceding most of their market share to exchanges run by foreign players.
Binance, Coinbase and other foreign exchange exchanges accounted for 67.6% of India’s crypto market share by October 2022, up from 50% in November 2021, according to New Delhi-based think tank Esya.
During February 2022, when India Unveiled its crypto tax policyto shift $3.8 billion in trading volume from domestic centralized exchanges to those operating offshore by October 2022, report Say (PDF).
Indian exchanges including WazirX, CoinSwitch and CoinDCX lost up to 81% of their trading volume in the four-month period from July to October, Esya said, attributing the trend to local TDS rules.
India is one of the countries that has taken strict measures against cryptocurrencies. It began taxing virtual currencies last April, imposing a 30 percent tax on gains and a 1 percent tax on every cryptocurrency transaction.
The report argues that traders are turning to forex trading because they believe they will be able to conceal their activities from local authorities. Many forex exchanges, including Binance, offer peer-to-peer entry and exit functionality, freeing users from having to trade with a business.
Additionally, many forex exchanges, including KuCoin and Gate, allow cryptocurrency trading within certain capital limits (usually a few thousand dollars per day) without requiring KYC details. Decentralized exchanges such as DYDX do not require KYC by design. In the past, top Indian exchange executives have warned that India’s tax regime will force users to move to unregulated entities.
“This means that India has lost its international competitiveness not only in the VDA (Virtual Digital Asset) ecosystem, which is closely related to multiple emerging technologies, but also in terms of scarce liquidity, which is critical for the country to create economic value at the same time. It’s important,” Essia wrote.
“Importantly, the impact of the current VDA structure on government revenue is also unclear.”
The report urges the Indian government to reassess its crypto taxes, recommending that it exempt at least the 1% TDS tax on transactions.
The vast majority of local authorities remain among the most vocal opponents of cryptocurrencies.India’s central bank governor warned last month that private cryptocurrencies will trigger the next financial crisis unless its use is prohibited.
The central bank said last week that India, under its current G20 presidency, will prioritize developing a framework for global regulation of unsecured crypto assets, stablecoins and decentralized finance, and will explore “possibility of [their] ban“