India’s relationship with the cryptocurrency market has always been on the rocks with the government first banning the asset class in 2018 before reversing the decision last year. Despite the all-clear from the government, some banks did not make it easy for customers to conduct cryptocurrency transactions.
A recent signal from India’s tax sector stated that they were deliberating to levy a 2 percent tax on cryptocurrencies purchased from a foreign cryptocurrency exchange. This additional tax would come in the form of an “equalization levy”, a step to keep digital transactions within the purview of the country. Cryptocurrency enthusiasts and holders in the country were split on the latest decision, with many claiming it would hinder the growth of the industry in one of the largest South Asian markets.
It was just this year that the Indian government had expanded the scope of equalization levy to include any purchase by an Indian or India-based entity through an overseas platform. Girish Vanvari, the founder of tax advisory firm Transaction Square spoke on the latest decision by adding:
The way the new equalization levy is worded and defined, it appears that it will also be applicable on cryptocurrency bought from an exchange not based in India. The levy is on the selling price and companies may be required to add this to the cost of the crypto assets.
Apart from the additional tax, there may also be the possibility of an expanded equalization levy that would be applied on “offshore exchanges facilitating cryptocurrency transactions”. The ambiguity of cryptocurrency laws in India makes it difficult to track who has paid the levy or who has defaulted. Because of this experts predict that the customers will be the ones bearing the brunt of the upcoming equalization levy.
Some officials reassured holders that the levy will not be applied on any asset purchased from an exchange with a permanent establishment in India. This announcement comes at a time when several cryptocurrency companies have taken their headquarters offshore. A permanent establishment is a concept in tax laws that determines the country with the first right to tax a company and to what extent.
It still remains to be seen if India would go ahead with ratifying the law but either way, the latest discussion meant that discussions regarding cryptocurrencies had reached the top echelons of the government.