Crypto Tax a Block for Blockchain? Industry Divided Taxing on the Pocket?

Mumbai: Beyond the vocal and visible – retrial- facing crypto trading exchanges in India, there is a thriving local blockchain ecosystem valued in excess of $15 billion. But it must hurdle potential barriers to growth in the shape of a newly introduced tax that, some others believed, is more help than hindrance to this perception-challenged sector.

The 30% tax (and TDS) on crypto income announced in the Budget is seen by some as “recognition” of the blockchain industry. But many other also believed a high tax regime and stringent taxation terms could stunt growth in a sector populated largely by bootstrapped startups. “A high tax rate is very discouraging,” said Sidharth Sogani, founder –CEO, Crebaco, a rating agency for digital currencies and businesses that work with them. “Higher tax incidence reduces the scope for all players in the ecosystem; the crypto world is not just about exchanges that facilities trading or investment.”

Developers of decentralized applications (DApps) and DeFi protocols, raters, wallets, blockchain-focused venture funds, crypto asset managers, distributed tech companies, crypto-gaming & GameFi app makers and blockchain- linked Web 3.0 players from a large part of the $15 billion cohort.

“There are players that are trying to build other use-cases on the blockchain,” said Sogani.

According to Crebaco, the Indian blockchain industry employs nearly 10,000 people. “If your taxation is unfriendly, companies will move out of the country. This space is global in nature, and it is internet-based; travelling between countries is also easy now,” Sogani added. “Entrepreneurs and skilled engineers and coders may simply relocate to a tax-friendly destination such as Singapore or Dubai.”

The problem beings right at the outset. Most blockchain companies reward their employees (engineer, coders or developers) by offering tokens or cryptos as part of the compensation packages. That part of the remuneration paid in digital currencies (or tokens) will be seen as a ‘gift’ under the new tax regime, and be charged a flat 30%. That apart, higher tax on crypto incomes would also hurt traders and market-makers, a relaxation considered a must for the growth of the industry.

“Trading volumes will come down across exchanges because of high tax incidence. This will indirectly bring down tax revenue of the government,” said Darshan Bathiji, CEO of Vauld, a crypto-lending & trading platform.

“The TDS is going to hurt the industry the most; every time a player pays TDS, it goes from his immediate working capital. The decision to tax crypto incomes is a positive step, but it should not be so high; such high level of taxation may not help the ecosystem to grow,” Bathija said.

Countries such as Singapore, Malaysia, Germany, Portugal and Dubai have taken friendlier approaches to crypto investors and blockchain businesses. Many have issued licences to players in this space – bound by tight regulations. The tax rate (on crypto income) in several of these countries ranges from 2% to 15%.

Apart from a higher tax rate, curbs on setting-off losses, or have not gone down well with a section of the industry. “Higher taxation will be a hurdle for businesses in the short term, but over a longer period of time, this may get adjusted to the overall costing,” said Ankitt Gaur, founder-CEO, EasyFi Network, a blockchain based lending protocol for digital assets.


To be sure, taxation has helped remove the taboos and negative perception around blockchain businesses, Gaur said. He was also quick to point out that not all blockchain businesses need cryptos to operate. “The decision to tax crypto incomes may act as a catalyst for the ecosystem to grow. We’ll see a lot of Web 3.0 businesses coming up in India over the next few years; there will be several blockchain based applications targeting the BFSI sector too,” added Gaur.

“The use of crypto on the blockchain is very use-specific.”

Jagdish Pandey, chairman of Block-On Capital (a blockchain-focused VC funds), concurred with Gaur.” The tax level is very high, but we should see it is an at a faster clip now, as there is more clarity. Venture investors will throng to invest in Indian blockchain businesses,” Pandey added.

Assets managers and exchanges are not quite pleased as high tax incidence makes it difficult for them to attract new crypto investors. Estimates suggest there are 15 to 20 million crypto investors in India, with total holdings of around Rs40,000 crore.

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