Why have Indians given up on Crypto: An effect of proposed 28% GST?

The number of cryptocurrency transactions in India has declined drastically. As the global market cap of crypto is down by 50% and Bitcoin value crashed by 60% in just 6 months, crypto traders in India are now skeptical about gains as the new crypto tax in India comes into effect.

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Nothing is going in favor of crypto enthusiasts, especially those in India. The cryptocurrency industry has been affected by India’s regressive taxation policies for virtual digital assets (VDAs) since April 1.

The government is now reportedly considering levying a 28% GST on crypto transactions, by putting it in the basket with casinos, lotteries, race courses, and betting.

India has already imposed a 30% tax on all earnings from the transfer of crypto asset transactions and non-fungible tokens besides deducting 1% TDS above a threshold. Gifts made in crypto or digital assets are also subject to tax now.

Impact of GST On Cryptocurrency Transactions

The aggressive approach toward Crypto earnings without granting a legal status by the Indian government has reciprocal effects.

Trading volumes on India’s top cryptocurrency exchanges have dropped significantly since the tax regime was implemented last month. According to data from CoinMarketCap and Nomics (a data firm), WazirX suffered a 72% drop, ZebPay fell 59%, CoinDCX dropped 52%, and BitBns 41% respectively.

Disappointed by the moves of the Indian government many exchanges have either shifted their base or are in the process of doing that. WazirX recently announced that it has already shifted the base to Dubai, which is fast emerging as the favorite destination for blockchain, cryptocurrency, and startup entrepreneurs.

“It would be wonderful if there were discussions to keep VDA taxation in line with India’s treatment of regular financial instruments, and/or evaluate different uses of tokens when making decisions about crypto taxation,” Aritra Sarkhel, director for public policy at WazirX said.

Sarkhel believes that it is essential to examine global jurisdiction arguments related to tax and GST on crypto related activities.

In its annual crypto tax report, PwC noted that the classification of cryptocurrencies in local law will determine tax rules for capital gains. Therefore, each transaction should be evaluated individually.

The volatility in the crypto market is the biggest concern for everyone. While the government is yet to give crypto a legal status in India, the earnings from cryptocurrencies have attracted the eyeballs of government officials. There was also a huge uproar when the government announced its plan to levy tax on Crypto gains without granting any legal status to safeguard the interest of investors and crypto traders.

The proposed tax on crypto in India is not the only concern for crypto traders and investors in India. Billions of dollars have gone down the drain due to the recent crash in the crypto market. In less than two months, the global cryptocurrency market cap has tanked from $2.14 trillion to $1.22 trillion. Bitcoin has lost nearly 60% of its value in the last 6 months, trading at $28,606 now.

The rising number of scams and frauds related to cryptocurrency is another area of concern.

The tanked market cap, crashed prices and worrisome decline in transaction volume clearly indicate that a sizeable number of crypto traders and crypto enthusiasts in India have started distancing away themselves from cryptocurrency – at least for time being, if not permanently.

What’s your take on the government’s planning to impose 28% GST on crypto transactions in India?

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