April 11, 2022
By Anjali Kochhar for Blockchain Asset Review
BAR: First and foremost, what’s your take on the crypto tax that has been passed in the Finance Bill?
NS: Lok Sabha passed the Finance Bill to levy 30% taxes on virtual digital assets from April 01, 2022. It deems any income from the transfer of cryptos eligible for taxation, irrespective of whether the crypto-assets qualify as capital assets or they don’t. Such policies are a deterrent for existing and potential investors and will decrease overall market participation.
The crypto-asset day-traders who do not even fall in the income tax slabs would also be unable to save taxes, making them reconsider trading or investing in this space. Moreover, the additional blow bars investors from counterbalancing their losses from one crypto trading pair with gains from another type. Not only would this be considered a significant detrimental factor for crypto trading and investment adoption in India, but it would also become a setback for the growth of the crypto ecosystem in India.
The move comes when India is already lagging in this landscape, vis-à-vis its global counterparts, indicating the pressing need for an immediate course correction. The recourse would be to provide a conducive environment to foster industrial growth and democratization of crypto-assets in India.
BAR: What impact will it have on crypto exchanges in the country?
NS: The performance of the exchanges is directly proportional to the volume of trading and investor participation. Since the implementation of the taxation as imposed by the bill, there has been a decline in the collective trading volume across Indian exchanges.
However, it would be premature to imply that the dip is only due to the after-effect of the recent amendments. Therefore, it is advisable to wait and watch until the second or third week of this month to understand if the move is a transient change or if it will lead to long-term implications.
BAR: Is it good news that cryptos will now be regulated and taxed (in fact govt might ban them) or a bad one that people will get heavily taxed?
NS: In alignment with the regulation of any other financial industry, crypto assets regulation, including taxation, would be a prerequisite for the industry to flourish. However, the current bill lays down parameters that could reduce participation and increase inefficiencies instead of encouraging more people to join the bandwagon.
The Indian Exchanges are KYC compliant and ensure that the transactions are secure, guaranteeing that the traders are protected against any security threat. However, due to current taxation laws, there is a possibility for them to shift their capital to unregulated or decentralized P2P or foreign exchanges. This could become a challenge not only for the exchanges but also for the government to get revenue from taxes. But the larger implication will be the disadvantage to the Web3 space where it will intercept innovation and job creation as entrepreneurs will move to countries with more friendly policies and taxes towards crypto.
BAR: What would be WazirX’s next step? Would the company be appealing to the authorities? what are they going to do now? Is there any other avenue? For instance, RBI’s banking ban was overturned by the Supreme Court.
NS: It is too early to choose a particular course of action as we are still discerning the effects of the new tax laws. We will have to select the appropriate route once we have a complete picture.
BAR: If not 30% tax, what should the government do to regulate cryptos in the country. What do you suggest?
NS: We firmly believe that there is a need to regulate and tax crypto, but it is poised to do more harm than good in its current form. It will also fail to provide desired results for the government. Therefore, it is essential to treat trading in crypto assets like any other asset available to investors and set the taxes accordingly. At present, the taxes are at a rate that compares to activities like horse racing, monetary-based online gaming etc. These activities are far from what trading in crypto is, so we need to treat it at the same level as stock investments and keep the tax range at more reasonable levels.
Another important factor would be to bring down the TDS from 1% to 0.1%. This would act as an incentive to encourage an inflow into the sector, create better liquidity, and free up their capital bandwidth.
BAR: Every day comes the news of tax evasions by crypto exchanges. What’s the side of the story we are not able to see?
NS: This was a black swan event that is not recent and happened earlier this year. We have been paying tens of crores of GST every month. There was an ambiguity in the interpretation of one of the components, which led to a different calculation of GST paid. However, we voluntarily paid additional GST in order to be cooperative and compliant. There was and is no intention to evade tax.
That being said, we firmly believe that regulatory clarity is the need of the hour for the Indian crypto industry. It will also provide us with more clarity on taxation to work in sync with the lawmakers and continue to be a responsible industry player.
BAR: What are WazirX’s plans of expansion this year for Indian investors?
NS: WazirX is strengthening the crypto asset landscape in India by investing in blockchain development, the underlying technology for crypto-assets. We want to make sure that we align with the regulatory changes and do our best to develop our country’s infrastructure to evolve with the crypto eco-system. In this vision, education, transparency and security are important for our organization. We want to make sure that our system is transparent to policymakers and law enforcement agencies. We have been working with Police cyber cells across the country to train them. The training includes knowledge of the basics of the blockchain, on-chain analysis to flag off suspicious trading activities as per regulatory frameworks, and education on using tools that can prevent such crimes and identify fraudulent and fair transactions.
Education for our customers is another critical pillar. We have been rolling out educational campaigns to help the new users clearly understand the risk and rewards of investing in crypto. It includes informing them about recent developments in a dejargonized manner, equipping them with the knowledge to evade any unscrupulous activities, supporting them with any required information, and clarifying any myths.
Last year, we also launched the first Transparency Report to bring more clarity and build transparency for users and policymakers in India around everything crypto. The report includes information on cases where WazirX provided vital information to law enforcement agencies to ensure that the concerned agency is entitled to the data they are requesting.
BAR: What challenges will the exchange face after the new rules in cryptos?
NS: Customers are at the core of all our operations, and we want to make sure that they are protected. In India, over a million citizens rely on crypto to earn a living. Pandemic was a period when people lost jobs, and crypto was one of the reasons people survived. We are concerned about the loss of their livelihood, their dreams – a majority of these are people in the 18 to 30-year-old category.
We are working with relevant authorities and are committed to our customers to iron out any pain points.
About the author
This interview was conducted by Anjali Kochhar who covers cryptocurrency stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.