The Force Behind a 1% Tax That Crushed Indian Crypto Trading

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Throughout the year, India’s central bank has repeatedly shown its hostility for cryptocurrencies by favoring efforts at complete prohibition. One person, Indian Finance Minister Nirmala Sithararman, has kept parliamentary debate on that possibility at bay by not introducing any draft legislation.

“Cryptocurrencies are by definition borderless,” she wrote to Parliament, explaining that no regulation or ban could be effective without “significant international collaboration."

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Despite keeping the legality of crypto in limbo, Sitharaman was the chief architect of the Finance Bill of 2022, which included stiff taxes on crypto that resulted in the ecosystem entering a period of pain.

“I don’t wait till regulation comes into place for taxing people who are earning profits,” she famously said when asked how a nation can tax something that it doesn’t acknowledge is legal yet.

No official data has been made public on the size of the Indian crypto market; estimates range from 20 million investors to 115 million, the latter figure from a survey by crypto exchange Kucoin in June.

India’s crypto downturn after enacting the 30% tax on profits and the more controversial 1% tax deducted at source (TDS) was brutal. Within 10 days of the April 1 imposition of the 30% tax, trading volumes nosedived more than 50% on some exchanges. This was exacerbated by rising inflation, Russia’s war on Ukraine, global crypto contagion and investigations against at least 10 crypto exchanges (the exact number is unknown).

Recently, however, as crypto investors around the globe reeled from the sudden collapse of crypto derivatives exchange FTX, the Indian press was praising Sitharaman for the taxes’ damping effect on crypto exposure, saying: “Indian investors have been largely spared from the crypto meltdown.”

In this chaotic crypto economy, Sitharaman is gaining power to lead the worldwide debate on crypto regulation. Starting in December, India will hold the presidency of the Group of 20 nations for a year and host the G-20 summit in 2023. Whoever holds the presidency gets to set key priorities, and Sitharaman has already already indicated that framing crypto regulation will be an international priority during India’s term.

In 2022, she imposed harsh crypto taxes in India. Next year she is positioned to frame crypto regulation for the world.