Crypto Space Enraged Over Taxes With Possible 28% GST
Several media reports stated that tax authorities in India are planning to impose a whopping 28% GST on cryptocurrency activities. Currently, crypto exchanges in India pay a GST of 18% as these exchanges are considered intermediaries in the financial service.
It is believed that the GST Council will set up a dedicated law committee to study various digital activities, including trading, staking, and wallets, for taxation. There is a general view circulating among GST officials that believes activities related to digital currencies must be considered along with betting, gambling, horse racing, and other speculative indulgences alike.
Director of Wazirx, Aritra Sarkhel, stated that the current movements in the digital market are somewhat mirroring the movements in the financial markets around the world. It will be a good move if deliberations to keep taxes on VDAs are made in line with the treatment of several other financial products in India and evaluate the distinctive use cases of crypto coins while deciding on the taxation of crypto activities.
The highest GST rate of 28% is normally levied on luxurious items because they are non-essential. Betting and gambling activities also fall in this category of GST as such activities are considered luxurious and non-essential indulgences.
Putting cryptocurrency at the same level as gambling and betting and levying the highest 28% GST rate can be an ultimate blow to the digital industry in India. The new GST policy started on the 1st of April for the digital sector, and it includes a flat tax rate of 30% on profits and a TDS of 1% on every transaction. Many popular casinos in India, like Ripple casinos, are certainly affected by this decision taken by the Government.
In addition to this, there are surcharges and CESS that crypto transactions attract. These taxes will be applied for certain transactions, including capital gains tax of 30%, TDS of 1%, GST of 28%, and surcharges and cess. If the transactions involve foreign currencies, more taxes will be applied.
Nevertheless, which portion of cryptocurrency transactions will have a 28% GST rate is still a question mark. Many experts claim that the tax will be applied to the margin rather than the entire value or supply of current crypto assets. The absence of clarity on these issues related to crypto transactions and taxation has led the GST authorities to charge the top 11 crypto exchanges in the country with evasion of taxation in line with Rs.84 crore. The entire amount will be recovered along with a penalty in January.
Goittus Crypto Exchange’s CEO, Vikram Subburaj, urged the authorities to give a clear verdict on these speculations and added that crypto investors are being pushed to the edge in India. He also stated that a 28% GST on crypto investments would force many people to move to non-compliance. Adding to the 30% tax on crypto profits implies that investors in India will not be able to recover from crypto assets.
The authorities have employed every tool at their disposal to disappoint crypto traders. Another key measure that is more lethal for investors in the crypto industry in India is the denial of payment services in the retail sector. Since bank accounts possess complete access to retail payment services, including UPI, investors in India have started using crypto wallets to make payments through UPI and instant money transfers.
In 2018, the RBI ordered commercial banks to stop all their services to cryptocurrency exchanges, and the Indian Supreme Court later overruled this. Despite the Supreme Court calling the directive by RBI illegal, the financial institutions did not resume their retail payment services to cryptocurrency exchanges.
Certain payment aggregators and private banks previously offering payment services have completely stopped offering regular banking and payment services to crypto exchanges in the Indian market. As a result of this, in 2019, a popular Indian startup, WazirX, was overthrown by the largest cryptocurrency exchange in the world, Binance. Due to this, WazirX was forced to stop accepting deposits in the Indian fiat currency. Coinbase, an NYSE-listed crypto exchange, experienced the same in just three days of its launch in India last month. Two more highest valued crypto unicorns in India, CoinSwitch, and CoinDCX, also had to walk in the same footsteps.
Several companies were forced to move their crypto operations to other countries, such as UAE. This has enacted a cryptocurrency regularisation law to shift the destination of these exchanges to other crypto businesses and finance. There have been significant movements of digital funds by affluent Russians to the UAE due to the restrictions prevailing in their country, mostly resulting from the Russia-Ukraine war followed by different financial sanctions by the US on Russia.
Earlier this month, CERT-in, or the Computer Emergency Response Team, which is a leading authority on cybercrime and cyber security in the country, under the Ministry of Electronics and Information Technology, led the VPN providers and crypto firms to store the Know Your Customer (KYC) data for every customer for at least five years. The client information is to be stored safely for five years, including clients’ names, ownership patterns, and contact information.
The overall result of these stringent measures has proved to be exceedingly harsh for the crypto sector in India, which includes more than 300 startup companies and around 15 mn investors. The crypto exchanges are witnessing a fall in their trade volumes almost by 90 to 98 percent compared to last year.
Such a substantial loss can be evaluated by WazirX trade volume, which is the largest crypto exchange in India in terms of volume. In 2021, WazirX had recorded $44 billion in trade volume, and the top five crypto exchanges in India had 10 to 14 million registered investors.