Centre losing revenue as crypto trading moves offshore

economictimes.indiatimes.com:

offshore platforms after the government levied 1% tax deducted at source (TDS) on trading of virtual digital assets (VDAs) with effect from July 2022.

The study, by Delhi-based think-tank Esya Centre, found that over Rs 3,50,000 crore was traded by Indians on offshore platforms between July 2022 and July 2023, which is over 90% of total VDAs traded by Indians. This has deprived the exchequer of Rs 3,493 crore of revenue, as against the collected revenue of Rs 258 crore, because of offshore trades that are not TDS compliant.

This also means that billions of dollars of capital gains tax will not be collected on these trades conducted offshore.

And, this does not even factor in private transactions or larger over-the-counter (OTC) trades.

“Data shows that two likely policy objectives of the tax—to curb speculation and create transparency around transactions—have not been achieved,” Vikash Gautam, adjunct fellow at Esya Centre, told ET. “There is an urgent need to reduce the TDS in particular to fix this to the benefit of the Indian economy and VDA investors/consumers.”

Over 3-5 million Indian users have shifted to offshore platforms since the TDS was announced in February 2022, with a single offshore exchange (read: Binance) reporting 450,000 sign ups in the month following its implementation in July 2022.

The Indian government introduced a 1% TDS on VDA transfers from July 1, 2022 along with a 30% capital gains tax on the profits earned from April 1, 2022.

The announcement made in previous years’ budget speech marked the first official definition and recognition of crypto assets or the industry in Indian law. In addition to this, Indian virtual asset service providers (VASPs) are now included as reporting entities