India’s approach to cryptocurrency has taken a hawkish turn, contrary to the expectations of many who anticipated a more crypto-friendly regulatory environment. Nischal Shetty, the CEO of WazirX, a prominent India-based crypto exchange, believes that the heavy tax regime will persist, prolonging the challenges faced by the Indian crypto market.

India’s Trading Volume Plummets:
During the budget presentation in February 2022, India introduced a 30% tax on cryptocurrency revenue, coupled with a 1% tax deducted at source on all asset sales. These stringent taxes have significantly increased transaction costs, dissuading market makers and large investors from participating actively. As a consequence, trading volumes on domestic crypto exchanges have witnessed a significant decline.

CEO Shetty’s Pessimistic Outlook:
In a recent interview with Bloomberg, Nischal Shetty expressed his skepticism regarding any immediate reduction in tax deducted at source (TDS), citing the absence of substantial discussions between industry stakeholders and lawmakers. However, while Shetty remains pessimistic about an instant tax reduction, he remains hopeful that India may eventually embrace more favorable crypto policies.

Crypto Firms Seek Alternate Jurisdictions:
In the meantime, other jurisdictions such as Dubai, Hong Kong, and the European Union have made significant strides in providing regulatory clarity for crypto. Many crypto asset firms are exploring opportunities to expand their operations in these countries, abandoning the unfavorable crypto climate in India. This migration of businesses may incentivize the Indian government to work towards establishing a welcoming atmosphere for crypto firms to flourish.

Indian Crypto Market Adversely Impacted:
The high tax regime imposed by the Indian government has caused several local crypto trading platforms to lose investors and customers to their overseas counterparts. According to CoinDCX, an India-based exchange, more than 2 million users were lost by Indian crypto exchanges between February and December 2022, coinciding with the tax announcement. Conversely, overseas trading platforms witnessed an influx of over 1.5 million users from India during the same period.

Efforts for Tax Reduction:
CoinDCX has been actively engaging in lobbying efforts to persuade the government to reduce the 1% TDS to 0.01%. However, no specific timeline for this potential tax cut has been mentioned. Meanwhile, major players in the Indian crypto industry, including WazirX’s CEO Nischal Shetty, have already started exploring opportunities abroad. Shetty has relocated to Dubai to establish Shardeum, a blockchain startup poised to compete with Ethereum and other leading blockchain networks.

Adaptation and Workforce Reduction:
Amidst the tax challenges and market hardships, several Indian exchanges, including WazirX, CoinDCX, and CoinSwitch, have been forced to reduce their staffing. The adverse market conditions have compelled these companies to make difficult decisions and streamline their operations to navigate through the current uncertainties.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.