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Indians Shifted Close To $4 Billion In Crypto Out Of The Country In 2022 – Where Did It Go?

Indians Shifted Close To $4 Billion In Crypto Out Of The Country In 2022 - Where Did It Go
Indians Shifted Close To $4 Billion In Crypto Out Of The Country In 2022 - Where Did It Go

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Crypto traders in India transferred over $3.8 billion worth of trading volumes from local to global cryptocurrency exchanges after the country imposed strict cryptocurrency taxation rules in February last year.

Indians moved over $3.8 billion in crypto out of the country

Research conducted by the Esya Center noted that $3.85 billion worth of crypto was moved out of India between February and October last year. The report highlights the monetary effects of the strict crypto taxation laws imposed in India.

Last year, Indian legislatures passed a law that imposed a 30% tax on crypto profits. The law also included a 1% tax deducted at source (TDS) on all transactions. The law was passed on February 1, 2022, and applied to domestic exchanges.

This taxation policy was implemented on April 1, 2022, while the 1% TDS was implemented on July 1, 2022. When the taxes were proposed, there was much opposition from the crypto community in India, with many arguing that it would inhibit the industry’s growth and affect liquidity.

The research report by the Esya Center noted that domestic cryptocurrency exchanges had lost 81% of their trading volumes within four months following the implementation of the controversial 1% TDS rule.

One of the exchanges expected to be affected by the new taxation policy is WazirX. The latter is one of the largest cryptocurrency exchanges in India. Before the new crypto tax law was implemented, the CEO and the founder of WazirX, Nischal Shetty, said that Indians would come up with ways of being part of the local sector because people would not leave the crypto industry.

Esya has also predicted that centralized cryptocurrency exchanges would no longer be able to operate in India if the current trend continues, and crypto investors prefer to use foreign exchanges as compared to local exchanges. The report noted that the rise in offshore crypto transactions defeated the purpose behind the tax policy.

“The current tax architecture may lead to a loss of approximately $1.2 trillion of local exchange trade volume in the next four years,” the Esya report said.

The report also noted that India’s virtual digital asset industry was affected by the current tax architecture, with the possibility being that nearly all the centralized VDA users in India would switch to foreign exchanges.

The research also pointed to some changes that could be made to ensure that not all local users move to foreign exchanges. One of the recommendations is reducing the TDS fee from 1% to 0.1% per transaction, the same amount paid as securities transaction tax.

The researchers have also recommended allowing losses to offset gains and create a progressive tax on gains compared to the flat tax rate of 30%. The findings in this report could lead to Indian authorities cracking down on these outflows in the crypto market, which could further slow down the growth of the industry in the country.

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