Source: news.google.com
Last year, during her 2022-23 Union Budget speech, Union Finance Minister Nirmala Sitharaman laid out three key policy decisions for the cryptocurrency sector.
All crypto assets would be classified as virtual digital assets, and income from their transfers would be taxed at 30%. In addition, an additional 1% tax would be deducted at source on all VDA transactions. And finally, any loss from the VDA transfer could not be offset by any other income.
With these measures in place, Indian crypto exchanges such as WazirX, CoinDCX, and CoinSwitch lost a significant portion of trading volumes to international exchanges such as Binance and Coinbase, which do not have to comply with India-specific crypto regulations.
In fact, Indian stock markets lost $3.8 billion between February and October 2022 in currency exchanges, according to a report by the Esya think tank. He added that Binance and Coinbase had 67.6% of the volumes in India, up from 50% in November 2021.
Now, as the Indian government prepares to submit its Union Budget for fiscal year 2023-24, India’s crypto and Web3 sector is seeking improvements to last year’s regulations.
VDA Reclassification
In particular, some industry leaders are calling for the classification of VDAs as a regulated asset class, the repeal of the 1% TDS rule, and the ability to offset or pass through losses on VDAs.
Rajagopal Menon, vice president of Indian cryptocurrency exchange WazirX, believes that VDAs should be classified as a separate asset class with tax blocks and compensation benefits similar to those applied to securities.
“Securities are classified as an asset class based on the risks associated with them, with products ranging from low-risk government bonds to high-risk derivatives,” Rajagopal said. The history of decryption. “As a result, VDAs need to be properly classified and regulated so that investors can understand the associated risks and invest accordingly.”
Menon also highlighted the negative impact of the 1% TDS on sales transactions, insisting that this should be abolished or repealed.
“This tax causes investors to lose capital with every trade and discourages potential investors from participating in this market,” he said. “Current tax tables will only discourage and deter traders with an appetite for risk from trading VDAs.”
Amanjot Malhotra, Country Head of Bitay India, another cryptocurrency exchange, also raised concerns about the current tax policies on VDAs.
“VDA trading volumes in India have suffered significantly after the introduction of 1% TDS, but interest from Indians has remained broadly unchanged,” he said.
“Indian exchange volumes have fallen by almost 90%, while the adoption of foreign exchanges by Indian users has seen a massive increase. The high rate of TDS, which was introduced to track the movement of crypto assets , it has only pushed transactions abroad.”
Malhotra suggested that appropriate policy modification, such as a lower TDS rate of 0.01%, would not only boost industry confidence, but also meet required regulatory requirements.
He also stressed the importance of allowing loss offset on VDA, similar to traditional assets like stocks, gold and bonds.
Key Web3 Industry Policy Recommendations
- Reclassification of Virtual Digital Assets (VDA)
- Repeal of 1% TDS (or reduction in value)
- Ability to offset or course forward losses in VDA
- Policies to Promote Blockchain Use Cases
Policies to Promote Web3 Use Cases
A 2022 NASSCOM report found that 60% of Indian Web3 startups registered outside the country, but recruited a domestic tech workforce. Also, 11% of global Web3 talent is in India and growing at a fast pace, he added.
To harness this potential and encourage more Web3 start-ups locally, the Indian crypto industry is seeking a more innovation-friendly regulatory environment for Web3 in the next Union Budget.
“As a rapidly evolving asset class, VDAs require a different approach to regulation that is more in line with the digital age we live in,” Rajagopal said.
Colexion, an NFT marketplace and ecosystem, calls on the government to establish a clear legal framework to boost blockchain use cases in the country.
“The Indian government must create a framework for the secure and efficient use of blockchain technology, which can be used in various industries such as finance, healthcare and supply chain management,” said Abhay Aggarwal, chief executive officer. and founder of Colexion.
In addition to this, other industry leaders in the NFT segment have highlighted the need for clear policies for different types of crypto assets across the broader range of VDAs.
GuardianLink, a no-code NFT launch pad platform, wants to see comprehensive definitions for VDAs.
“It would also be a welcome step if different digital asset classes were placed in different tax brackets,” said Ramkumar Subramaniam, CEO and co-founder of GuardianLink.
“Some virtual assets are extremely volatile and their price can constantly rise or fall. However, some of them may only see a gradual increase in value, and it may not be attractive to investors to put them both in the same leg. fiscal”.
Promoting Web3 innovation in India
The brain drain and ambiguity around VDA regulation are typically identified as some of the weaknesses of the Indian crypto sector.
Industry players believe that clear and progressive regulations will not only address these weaknesses, but also help prevent black swan events like the FTX collapse.
“A progressive regulatory framework will address current concerns and uncertainty about the industry by creating transparency and helping industry players protect users,” it said. Rahul Pagidipati, CEO of ZebPay. “It will also foster innovation to transform existing businesses through blockchain technology, as well as create newer solutions for the industry to further prosper.”
Some other founders echoed Pagidipati’s sentiment, emphasizing that Indian regulation should not hinder Web3 innovation.
Pratik Gauri, co-founder and CEO of 5ire, a sustainability-focused protocol, believes that regulations should treat blockchain innovation as a source for value creation, not simply value capture.
“Any monumental change caused by Web3 will shift the world from a value capture economy to a value creation economy,” he said. “This will require a new set of rules that democratizes access to resources for creators and makes value creation just as rewarding by capturing value. This means a direct relationship between human capital and the consumers of its creation”.
For all Indian founders and startups using blockchain technology, it is becoming imperative that tax regimes do not hinder the development of Indian talent in Web3 and the innovations and disruptions that come with it.