Representatives of India’s cryptocurrency industry met with senior policymakers at the Finance Ministry in a bid to make officials reconsider some aspects of the new crypto taxation policy.
The meeting was the first interaction between the crypto industry and policymakers since Finance Minister Nirmala Sitharaman announced the crypto taxation policies during the national budget speech on Feb. 1.
Economic Times first reported that the meeting was held on Friday. However, CoinDesk learnt from multiple sources that a meeting was held on Thursday. Also, on Monday representatives from at least one major exchange held an unofficial consultation with a senior finance ministry official, according to a person who was present at the meeting.
The senior leadership of the crypto exchanges sought a review of the 1% tax deducted at source (TDS) on all crypto transactions, saying it was not feasible and difficult to comply with. CoinDesk has learnt that Finance Ministry officials are assessing the concerns and their legitimacy.
Exchanges are also framing a formal and detailed proposal with the help of an industry body, the Blockchain and Crypto Assets Council (BACC), and the big four auditing firms, led by EY. BACC, which is a part of the Internet and Mobile Association of India, has been leading consultations with the government on behalf of crypto exchanges and the industry.
The framework is being created to convince the government to exclude the 1% TDS clause from the finance bill, said people familiar with the work. “The Finance Ministry is open to talks and has asked for a formal proposal,” said a person familiar with the matter.
On Feb. 5, the crypto industry was in a huddle and held a meeting to discuss the TDS issue. The takeaway was that TDS could discourage small traders and potentially move them towards informal peer-to-peer (P2P) trading and decentralized exchanges.
However, industry experts and tax officials are divided on whether the government would reconsider removing the TDS or whether removing it is the best move forward.
“The government has introduced a removal of difficulties clause and this enables the department to be able to change the law,” said Anoush Bhasin, founder of New Delhi-based cryptocurrency tax advisory Quagmire Consulting.
“So, we will have to wait for parliamentary proceedings and discussions to see whether the government will reconsider. If not, the trading industry will be severely impacted. An alternate mechanism to collect transactional data must be explored with marketplaces/exchanges. The 1% TDS provision poses practical difficulties in implementation and an onerous compliance burden. It could severely dent investing and trading activity in India,” Bhasin said.
Gaurav Mehta, a crypto tax expert and founder of Catax, a one-stop-shop for crypto taxes, blockchain auditing and forensics, does not believe the government would reconsider saying that “in the interest of price discovery, risk management and compliance as primary responsibilities of exchanges, the exchanges should not have a problem with the 1% TDS.”
“Uncertainty surrounding cryptocurrency regulations, limited knowledge of the capital market and a desire to maximize profits drove exchanges to innovate unnecessarily, to the point where complexity became too much to handle – taking positions against the market, custodian, settlement, evangelism, airdrops and initial coin offerings (ICO), and incentivizing trades with rewards. Obviously, TDS is complicated for them. For exchanges engaged in standard exchange operations, TDS should be a cakewalk,” Mehta said.
Sidharth Sogani, founder and CEO of cryptocurrency research organization Crebaco, believes the government can come up with an alternate method, saying, “The potential of the crypto space is being ignored. If we make compliance simple, the industry will grow faster. Third-party auditors can be appointed to provide reports rather than applying TDS for the sake of transaction tracking.”
Apart from the 1% TDS, exchanges are also concerned about the 30% tax on all crypto investment gains. However, the reduction of the tax rate is a secondary priority.
“The crypto industry also hopes for a reduction in the 30% flat tax rate on gains but is unlikely to press on this at the moment,” Sogani said.
The budget included new rules for the crypto ecosystem, such as a 30% tax on any income from the transfer of virtual digital assets and a 1% TDS on all crypto transactions. The new rules will become law when the finance bill is passed by the parliament, which is expected in a few weeks.
Sumit Gupta, co-chairman of BACC and the CoinDCX exchange’s CEO, had earlier tweeted that the “30 [percent] tax will discourage traders.” Several industry leaders had echoed the same sentiment.
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