High Taxes May Kill Cryptocurrency Industry In India: Binance CEO

At a time when crypto startups in India are struggling with various regulatory issues, Changpeng Zhao, CEO of crypto exchange Binance, has said that high taxes on cryptocurrency transactions may “kill the industry” in the country.

“India has high tax which is probably going to kill the industry,” Zhao said at a fintech conference in Singapore on Thursday, as per media reports.

His statement comes against the backdrop of the Indian government introducing 30% tax on gains from cryptocurrencies and 1% tax deducted at source (TDS) on crypto transactions. While the former tax rule came into effect on April 1, 2022, the latter came into effect on July 1, 2022.

The major Indian crypto exchanges saw a sharp decline in trading volume, which fell as much as 70%, after the taxes came into effect. 

Earlier, a month after the TDS rules came into effect, Ken Li, executive director, Investments, Binance told Inc42 that while the implications of the tax were not clear, the platform was focused on “long-termism” of the founders and their tenacity when it comes to investment in India.

“The implications of this are still unclear. But our general perspective is that at the stage we invest in, the most important quality is the long-termism of the founders and their talent & tenacity. Great founders can succeed regardless of any externalities,” Li said.

Amid the uncertainty, one of India’s oldest exchanges ZebPay has applied for a licence in Singapore and is mulling a similar step in the United Arab Emirates (UAE). In July, Inc42 reported that more than half a dozen Indian crypto startups had moved to Dubai, Delaware and the British Virgin Islands.

Meanwhile, the Reserve Bank of India (RBI) continues to oppose cryptocurrencies. “These digital assets (cryptocurrencies) undermine India’s financial and macroeconomic stability because of their negative consequences for the financial sector…Further, a wider proliferation of cryptocurrencies has the potential to diminish monetary authorities’ potential to determine and regulate monetary policy and the monetary system of the country,” RBI said in its concept note for central bank digital currency (CBDC).

One of the objectives behind the RBI launching the CBDC is to reduce the popularity of private cryptocurrencies in the country. The RBI commenced the wholesale CBDC pilot on November 1, and plans to launch retail CBDC pilot next month. 

Meanwhile, the crypto exchanges in the country are also under the lens of the Enforcement Directorate in its various money laundering probes. Earlier this year, the ED froze assets of crypto exchange WazirX in a money laundering probe. Following this, Binance and the Indian crypto exchange were involved in a war of words as the former denied acquisition of Wazir X, which was announced in 2019.

Binance also removed the off-chain fund transfer channel between the company and WazirX. 

In addition, other popular crypto exchanges such as CoinSwitch Kuber, CoinDCX, have also come under the ED’s scanner.