Crypto: Domestic crypto trading volume worth 32,000 kroner shifted to foreign stock exchanges

From February to October 2022, a cumulative trading volume worth 32,000 kroner ($3,852 million) was transferred from domestic cryptocurrency exchanges to foreign exchanges. A study by the Esya Centre, a technology policy think tank based in New Delhi.

Of this, a cumulative amount of 25,300 kroner ($3.05 billion) was offshored within six months of the current financial year, the report said.

Entitled ‘India’s Virtual Digital Asset Tax Architecture: A Critical Study’, the study is the first empirical exercise to estimate the impact of India’s tax policies on the country’s centralized cryptocurrency exchanges.

A key takeaway from the research was that the main (unintended) impact of the policy was the offshoring of domestic liquidity to foreign exchange.

Researchers say they expect a commensurately large negative impact on tax revenues and a reduction in transaction traceability, defeating two central goals of existing policy architectures.

“Tax regimes seem to overlook two important aspects. Tax rates, such as price volatility, not only reduce consumption of certain commodities (i.e. trading via VDA exchanges in India), but also reduce demand for other goods. We will shift to commodities (i.e. trading through foreign VDAs). Borders are porous in the digital economy, so it is important to remain internationally competitive,” says Vikash Gautam, Adjunct Fellow at the Esya Centre. says Mr.

After the 2022 budget announced a 30% tax on profits, a 1% TDS and no provision for offsetting losses, the country’s centralized cryptocurrency exchanges announced plans for February and March 2022. trading volume decreased by 15%. Implementation of 1% TDS His VDA exchange in India, which has had the biggest impact on trading volume among these three tax measures, will have I lost up to 81% of my trading volume.

According to the report, following the crypto tax announcement, Indian crypto investors switched from domestic exchanges to foreign counterparts (an estimated 1.7 million users switched during the study period).

India was one of the fastest growing cryptocurrency markets in the world in 2021, but after aggressive tax policies, crypto adoption by Indians, as measured by mobile app downloads A significant drop of 16% on a monthly basis. Forex increases by the same amount from July to September 2022.

The firm used methodologies, including the causality method Change in Change (CIC), to estimate the impact of tax events on centralized exchange volumes. Most of the volume and value data was taken from CoinGecko. Using data from Chainalysis, the company compared the tax laws (tax rates, TDS applicability, loss offsetting provisions) of countries with high rates of VDA adoption (US, UK, Canada, Brazil, etc.) and India. Scenario-based predictions were also made on the future path of crypto exchange volume using SE ranking data used to understand his web traffic for his VDA exchanges in India and abroad.

The think tank estimates that the current tax regime could result in a loss of about $1.2 trillion in local FX trading volume over the next four years, compared to a market-oriented scenario where VDA TDS is on par with securities TDS. It is assumed that there is Loss set-off was allowed and taxation of VDA profits was comparable to international standards. “Governments should consider lowering TDS rates to reduce the distortion effect, especially since TDS rates can meet transaction tracking objectives.

Stay on top of important technology and startup news. Subscribe to our daily newsletter to get the latest must-read tech news delivered straight to your inbox.