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Will Other Countries Follow India’s Proposed 30% Tax on Crypto?
Are crypto’s days as a gravy train numbered? Well, if you formed your view of the world solely from what happens in India, you’d likely think this is the case. Because the Indian government has proposed imposing a special 30% tax on income from cryptocurrencies and non-fungible tokens (NFTs), meaning that if you receive cryptocurrency you will have to pay the taxman/women/person 30% of its value.
While crypto has a reputation for promising ridiculously large gains, the prospect of a 30% tax should be worrying for traders in India and beyond. Sure, some lucky traders do make profits in excess of 100% (or much more), but it’s likely that the vast majority of investors reap more modest gains from their transactions, meaning that a 30% tax could seriously eat into their profits. By extension, it could deter people from investing in cryptocurrency altogether, given that it might become harder to make a real killing.
While a number of other nations are certainly gearing up to introduce dedicated cryptocurrency taxation rules, few if any will be following in India’s footsteps. That said, even though most people can rest safe in the knowledge that their cryptocurrency won’t be taxed excessively anytime soon, many need to be aware that existing laws are likely to be enforced more consistently from now on, as governments get to grips with crypto.
India’s New 30% Tax Proposals on Crypto Seek to Calm Speculation
Quite apart from how India’s new proposal is being viewed in the rest of the world, it has already gained some notoriety within its own borders. That’s because, rather than treating cryptocurrency under existing capital gains laws, the Indian government has proposed to treat profits from crypto much like profits from gambling.
“We have now put in a taxation framework that treats crypto assets the same way we treat winnings from horse races, or from bets and other speculative transactions,” said Indian finance minister T.V. Somanathan, speaking to Bloomberg.
By treating cryptocurrency trading as a form of gambling, the government’s proposals mean that traders will have to pay a higher tax rate than with other financial assets. The very same set of proposals (which were included in India’s budget) have also stipulated that losses from cryptocurrency trading cannot be used to offset an individual’s tax liability deriving from other income.
Together, these new rules are likely to make cryptocurrency trading and investment less profitable for many people. This has already led many commentators and industry figures to suggest that it will reduce the numbers of people trading cryptocurrencies in India.
“The taxation of profit from crypto assets at 30% may not receive equal appreciation from all the stakeholders. The higher taxes may discourage investors from choosing crypto as an investment avenue and delay the mass adoption of crypto assets in India,” said OKX.com CEO Jay Hao, speaking with Finance Magnates.
And the ramifications of this could be felt in the wider, international cryptocurrency market, given that India accounts for anything from 15 million to 20 million investors. Assuming that a significant number of these stop trading, the effect could be to lower demand for — and the prices of — cryptocurrencies.
However, as of writing the governments proposals remain just that: proposals. They still need to be confirmed by the Parliament of India, with it likely to be enacted no sooner than April.
More Countries Set to Tax Crypto, But Not as Harshly as India
Even with the lag between proposal and acceptance, the new plans are likely to be accepted, if only because they represent a climbdown from earlier plans to ban cryptocurrency completely.
“Thirty percent tax on income from virtual digital assets, while high, is a positive step as it legitimises crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs,” said Avinash Shekhar, chief executive of ZebPay, speaking to Reuters.
But even if it is encouraging that the Indian government has softened its stance (slightly) on crypto, its move raises the fear that other governments may follow suit, particularly as they suffer from large debts in a time of economic hardship and inflation.
Indeed, South Korea — the tenth biggest economy in the world — is planning its own 20% capital gains tax on cryptocurrency trading, which will come into effect from 2023. This tax will apply to all profits of more than 2.5 million won ($2,105), meaning that all but modest investors will be affected.
Likewise, Austria is introducing a 27.5% tax on capital gains from cryptocurrency trading, coming into effect from March. This, according to its government, will be the first tax regime of its kind in the European Union.
This might all sound alarming, but it needs to be said that in the cases of Austria and South Korea, the taxes being proposed are in line with existing capital gains rules, and not in excess of them (as they will be in India).
“We are taking a step in the direction of equal treatment, to reduce mistrust and prejudice toward new technologies,” said the Austrian finance ministry in a statement.
As the Austrian governments make clear in the above comment, new taxation rules will, in most cases, simply bring cryptocurrency into the fold of existing capital gains taxes. While this may be disappointing for anyone who’d hoped to escape paying any tax on their cryptocurrency profits, it will ultimately serve to legitimate crypto in the eyes of governments (and the general public). And for those who believe in the utility and justice of taxation, it will also be fair.
So yes, while recent developments in India are concerning, they appear to be the exception rather than the norm. Indeed, Thailand nixed plans at the end of last month to impose a 15% transfer tax on cryptocurrency, following pushback from its national cryptocurrency industry. Instead, it will treat cryptocurrency income as capital gains, while it will also allow losses from cryptocurrency to be used to offset gains.
This goes to show that, slowly but surely, at least some governments are stepping onboard the crypto ‘gravy train.’ They want to tax cryptocurrencies equitably in order to obtain an extra source of tax income for themselves, but without suppressing the sector’s growth too much.
Of course, with the US government (among others) stepping up its monitoring of cryptocurrency trading, and with more exchanges requiring users to fully identify themselves for tax purposes, it will become much harder in the near future for successful traders to avoid paying their share of tax. Even if most countries don’t follow India’s example.
