The high taxation rate on cryptocurrency transactions in the country may “kill the industry” in India, Binance chief executive Changpeng Zhao said earlier today. Addressing an event on the global fintech industry in Singapore, Zhao said that the tax rate will likely be the cause for India’s crypto industry to be stifled.
Zhao’s statement refers to the 30% capital gains tax imposed on all gains made from cryptocurrency transactions in the country, which was announced by Union finance minister Nirmala Sitharaman at the announcement of Union Budget 2022. On top of this tax, the centre government also mandated a 1% tax deducted at source (TDS) on all crypto transactions — a move that experts had said at the time would be significantly adverse for the nascent cryptocurrency industry in India.
The effects of this taxation regime were clearly seen in India’s crypto exchanges too, after it came into effect from July 1. For instance, on WazirX, India’s largest crypto exchange by volume, data from crypto market tracker Crebaco Global, sourced by Mint, showed a drop in average daily transaction volume from $10.3 million in June this year, to $2.8 million in July — a 73% decline.
As of September this year, WazirX’s daily average transaction volume had dropped to $1.2 million — down 88% from before application of India’s tax on cryptocurrency transactions.
Binance, one of the largest cryptocurrency exchanges in the world, was at the centre of a run-in with the Enforcement Directorate (ED), a regulatory body under the Ministry of Finance, for its association with WazirX. In August this year, the ED, in an investigation of money laundering among instant lending services, highlighted that the latter were using crypto exchanges to transfer funds outside the country — thereby accounting for money laundering.
The investigation led to a series of back-and-forths between WazirX and Binance. While Binance had seemingly acquired WazirX in November 2019, the company said during this process that the regulatory bank process was never completed, and the acquisition did not happen. WazirX, however, said that any international transactions conducted through the platform were liable to be accounted under Binance itself.