Tech
Crypto Unicorn expects India to reduce taxes that have crushed trade
A tax that has pulverized digital asset trading in India has proven counterproductive and should be lowered, according to CoinDCX, a national exchange valued at more than $2 billion before the tax was imposed.
The nation implemented the 1% TDS tax on crypto transactions 16 months ago, saying the goal was to track purchases and sales rather than raise revenue. But the tax has pushed 95% of Indian trading volumes to foreign platforms that are difficult for local officials to monitor, CoinDCX Chief Executive Sumit Gupta said.
“The purpose of the TDS was to track and trace transactions, but that is being defeated,” Gupta said in an interview, adding that he expects the government to lower the tax in time as it understands the problem.
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The tax has led market makers to abandon Indian exchanges due to higher costs, weakening liquidity and discouraging trading. Local platforms remain in limbo even as Bitcoin’s recovery from the 2022 cryptocurrency rout helps volumes elsewhere in the world.
Waiting for change
India has called for a globally coordinated approach to crypto rules with the help of multilateral institutions. Gupta said he expects greater regulatory clarity by the end of 2025, following the 2024 national general elections.
India’s Finance Ministry spokesperson did not respond to emails and text messages seeking comment on the country’s cryptocurrency tax policy.
CoinDCX in April last year unveiled a $135 million funding round led by Pantera Capital and Steadview Capital Management LLC that valued the company at $2.15 billion. India has introduced 1% TDS from July 2022.
CoinDCX’s revenues are a third of the levels that prevailed before the tax change, Gupta said, adding that compliance expenses increased after India applied anti-money laundering legislation to the cryptocurrency sector.
At the beginning of 2023 the company reduced its staff by 12% and now has around 550 employees. Operating revenue and cash in the bank give CoinDCX a five-year “landing strip,” Gupta said.
Global flow
Jurisdictions such as Hong Kong, Dubai and the European Union have outpaced India in introducing crypto structures to protect investors and provide clarity to digital asset companies, some of which are looking to expand outside the United States after authorities regulation have cracked down there.
While activity on Indian exchanges like CoinDCX has declined, Chainalysis data suggests the nation continues to adopt cryptocurrencies through other means, such as offshore trading or blockchain-based financial services such as lending. According to Chainalysis, India received around $250 billion worth of cryptocurrencies in the year to June, second only to the US figure of more than $1 trillion.
CoinDCX, like other Indian digital asset exchanges, is looking to diversify revenue streams by looking abroad or expanding into different projects.
The company recently led a funding round in BitOasis, a crypto platform focused on countries such as the United Arab Emirates, Saudi Arabia, Bahrain, and Kuwait. CoinDCX is also building a crypto wallet called Okto that allows coin holders to delve into decentralized finance.
“Okto is a growth area that we are investing in because we want to see how we can bring web3 to life,” said Gupta. The term “web3” refers to a vision of a decentralized Internet built around blockchains.