ARUN KUMAR SHRIVASTAV
Indian tax authorities are planning to levy the highest 28 per cent GST on crypto activities, various media reports said on Monday quoting unnamed sources. Right now, Indian crypto exchanges pay 18 per cent GST as they are considered intermediaries providing financial services.
The GST Council is believed to have set up a law committee that’s studying various crypto activities such as wallets, trading, and staking for taxation purposes. The general view among the GST officials is believed to be that crypto activities should be considered at par with gambling, betting, horse racing, and similar speculative indulgences.
Normally, the highest 28 per cent GST is levied on luxury items as they are considered non-essential items. Gambling and betting also come under this GST slab as these activities are also considered non-essential luxury indulgences. Putting crypto at par with casino and gambling activities and subjecting it to the highest 28 per cent GST can be the final blow to the crypto industry in India.
From April 1, the new taxation policy for the crypto sector has come into effect and it levies a flat 30 per cent tax on profits and one per cent TDS on all transactions. Besides, there are cess and surcharges that every transaction attracts. In some transactions all of these will be applicable, meaning 30 per cent capital gains tax, one per cent TDS, 28 per cent GST and cess and surcharges. If the transaction involves foreign currencies, there would be more taxes.
However, the 28 per cent GST will be levied on which part of the transaction is yet not clear. Experts believe that the GST will apply to the margin instead of the entire supply or value of digital assets.
The lack of clarity on taxation issues for the crypto sector has resulted in GST authorities charging 11 top crypto exchanges in India with tax evasion to the tune of Rs 84 crore and recovering the money with a penalty in January this year.
As far as tax policies are concerned, the government has used every option it has at its disposal to discourage the crypto trade.
Another measure that’s even more lethal in nipping the crypto market is the denial of retail payments services. As all bank accounts have access to instant retail payments services such as UPI, Indian investors used to fund their crypto wallets through instant money transfers through UPI.
The RBI through a directive in March 2018 had asked the banks to stop this service to crypto exchanges, which was subsequently overruled by the Supreme Court of India. Despite the SC calling the RBI directive illegal, the banks haven’t resumed the retail payment services to crypto exchanges. Some private banks and payment aggregators who were offering these services, too, completely stopped providing regular banking services to crypto exchanges active in the Indian market.
As a consequence, WazirX, which is an Indian startup taken over by the world‘s largest crypto exchange Binance in 2019, had to stop the deposit option in Indian rupees. The NYSE-listed Coinbase did the same within three days of its India launch last month. The two highest valued Indian crypto unicorns CoinSwitch Kuber CoinDCX, too, had to follow in their footsteps.
Many of these companies have moved their operations to the UAE, which has recently enacted a crypto regularization law in a bid to turn the destination into a hub of crypto finance and business. There has been considerable movement of crypto funds by wealthy Russians from other tax havens to the UAE in the wake of the Russia-Ukraine war and the financial sanctions by the Western world on Russia.
Early this month, the Computer Emergency Response Team (CERT-in), the country’s foremost authority on cybersecurity and cybercrime, under the Ministry of Electronics and Information Technology directed crypto firms and VPN providers to store customers' KYC (Know Your Customer) data for a minimum of five years. The information to be kept safe for at least five years include customers’ names, contact information, and ownership patterns.
The net result of all these measures has been extremely harsh for the Indian crypto sector which includes over 300 startups and about 15 million investors. The exchanges have witnessed a drop in trading volume by 90-98 percent in the first two weeks of April compared to the same period last year.
The loss can be estimated by the trading volume of WazirX, the largest among Indian crypto exchanges by volume. WazirX had registered $44 billion in trading volume in 2021 while at least the top five Indian crypto exchanges have 10 million to 14 million registered users. IPA Service