Impact of sidestepping stakeholder consultation: Case of India’s TDS on virtual digital assets transactions

financialexpress.com:

By Lavu Sri Krishna Devarayalu

Despite consistently housing some of the world’s top technology and engineering talent, India has historically only managed to extract a small portion of the total value created in the IT or internet industry – with the majority being captured by the companies availing Indian IT outsourcing. While Indian technology platforms – i.e., Zomato or CRED – have generated huge success by targeting the burgeoning Indian market, we have yet to see breakthrough Indian platforms at a global scale. Web3 offered a potential divergence to this trend; with VDA marketplace platforms like CoinDCX and CoinSwitch quickly achieving Unicorn status and technology platforms like Polygon cementing themselves as global Web3 leaders.

However, like the companies from the Web2 era, the current national policy direction threatens to snip the wings of this budding industry – once again relegating Indian companies to the role of back-offices. When India chose to levy a 1% Tax Deducted at Source (TDS) on all transactions involving VDAs, it sparked a ripple effect that created a drastically uneven playing field, reducing business on Indian platforms by over 95%  resulting in layoffs and the migration of users to foreign platforms. Ironically, while the purpose of the tax was to chill the Indian VDA market and create traceability; the primary outcome was a massive shift of 5 million plus Indian users, thousands of crores in assets, and several multiples more of trade volume – an estimated $30bn is currently being traded annually on foreign VDA exchanges by Indians — to foreign exchanges that do not report transactions to any Indian government entity. This outcome could have been avoided with a more holistic approach