As published on cryptodaily.co.uk, Wednesday 20 April, 2022.
The new Indian tax law came into force on March 31, which obliges citizens trading in crypto to pay capital gains tax of 30% on their crypto. In addition, they will pay a 1% tax deducted at source on every transaction. The move has since resulted in as much as a 90% reduction in trading and many crypto platforms are deciding to move abroad.
Some thought that the 30% tax on crypto investors was worth the price to pay in order for the sector not to be banned outright. However, it appears that the Indian government may have fallen between two stalls in that the swingeing new 30% tax levy is wiping out the sector anyway.
On April 7 the National Payment Corporation of India (NPCI) issued a statement declaring that it wasn’t “aware of any crypto exchange using UPI”. UPI is the Unified Payments Interface - in short, the national fiat payment gateway.
The fact is that crypto platforms such as exchanges avoided directly using the UPI, and instead they partnered with payments processors that already were using it.
Nevertheless, when the NPCI published the April 7 statement, many payment service providers thought that the stance on crypto was becoming too negative for their tastes and they decided to unpartner all the crypto platforms.
This, together with the extremely unfavourable tax climate for crypto has led to crypto platforms, such as exchanges, to look for better treatment elsewhere. Dubai, in the UAE is one such place that could be a much better alternative.
Given that the Indian crypto sector was doing well, and some platforms were really flourishing, this could be a real loss to the Indian government, as the most innovative brains start the move overseas.
Polygon, the layer 2 blockchain potentially poised to become one of the most used platforms on ethereum, is one company that has felt compelled to make the move out of India and into Dubai.
Co-founder Sandeep Nailwal complained back in March about the “crazy” crypto brain drain from his native country. He stated:
“I want to live in India and promote the Web3 ecosystem, but overall, the way the regulatory uncertainty is there and how big Polygon has become it doesn’t make sense for us or for any team to expose their protocols to local risks.”
If crypto is the future for payments and for several other important industrial sectors, then India might find itself an impotent spectator looking on as other more forward-thinking countries reap the benefits of providing a crypto environment that includes fair regulation and which promotes the wildly innovative use cases that crypto brings to the table.