Rs 3,500 crore [Over 420M] of TDS from Virtual Digital Assets goes uncollected as per reports!!!
According to a report by the Esya Centre, a technology policy think tank based in New Delhi, the implementation of a 1% tax deducted at source (TDS) on virtual digital asset transactions in #India has led to an unexpected consequence.
The ESYA Report:
The report indicates that between 3 to 5 million users have migrated to foreign #trading platforms as a result. This move, announced by the Union Ministry of Finance in February 2022, was intended to discourage speculative activity and increase traceability in India’s VDA ecosystem.
However, the Esya Centre report, titled “Impact Assessment of Tax Deducted at Source on the Indian Virtual Digital Asset Market,” found that the implementation deprived the exchequer of Rs 3,493 crore of revenues, as opposed to the collected revenue of Rs 258 crore.
The report emphasizes that the VDA tax architecture in India has missed an opportunity in terms of revenues for the exchequer and the localization of the VDA industry.
The study's author, Vikash Gautam, stated, “The benefits of the burgeoning VDA market in India are being reaped by offshore exchanges. Data from the report showed that two potential policy objectives of the tax—to curb speculation and create transparency around transactions—have not been achieved.
As a result, there is an urgent need to reconsider the TDS for the benefit of the Indian economy and VDA investors/consumers.”
It is noteworthy that out of the Rs 258 crore collected, Rs 250 crore was paid by domestic Indian VDA exchanges—accounting for 97% of the total amount. In contrast, only Rs 7 crore was collected from trades by Indians on offshore platforms, which is just 0.2% of the Rs 3,500 crore that should have been collected.
The Esya Centre report utilized data from Indian and global VDA ecosystems, analyzed transaction volumes from 13,000 peer-to-peer #P2P traders, and conducted a survey of executives working at India’s VDA exchanges to assess the impact of the one percent TDS levy. Through this analysis, three key insights were revealed.
It was found that 3 to 5 million Indian users have transitioned to offshore platforms since the TDS was announced in February 2022. This significant shift was accompanied by a single offshore exchange reporting 450,000 signups in the month following the implementation in July 2022.
Furthermore, web traffic, active users, and downloads by Indians on offshore platforms have shown a consistent increase since July 2022, while a simultaneous decline was observed on Indian VDA exchanges during the same period.
A causal analysis of data on weekly active users, downloads, and web traffic indicated that the TDS provision and the lack of government intervention have had a substantial impact on users, who are advocating for the levy to be suspended. The impact was estimated to be between 44% to 74% on these parameters.
A closer examination of P2P trader data collected from leading offshore exchanges revealed that over Rs 3.5 lakh crore worth of VDAs were traded by Indians on offshore platforms between July 2022 and July 2023, accounting for more than 90% of the total VDA trade volume by them.
This report sheds light on the unexpected effects of the 1 percent TDS on VDA transactions in India, urging for a reevaluation of the tax provisions to effectively address the concerns of the Indian VDA market and its participants.
