Budget 2023 Expectations: From Regulatory Framework to Tax Refunds, What Does the Crypto Market Want?

The year 2022 has gone down in history with bitter shocks for the crypto markets, including collapse of major stablecoins, illiquidity, bankruptcies of leading crypto exchanges, free decline in trading volume and extreme volatility. In India, crypto markets faced dual tax shocks such as: For example, a 30% plus premium and premium and a 1% TDS deduction on virtual digital currencies impacted both the market and investors.

While the ongoing 2023 looks set to be a cautious year for crypto investors, there are hopes that the 2024 budget could provide a much-needed boost to move forward. An easing of the tax system and regulatory framework is something the crypto market is very much looking forward to from this budget.

Punit Agarwal, Founder of KoinX said, “If 2022 opened doors to taxes, 2023 could open doors to a better and more streamlined tax regime for crypto investors across India.”

Agarwal cited that India has repeatedly pointed to crypto regulations over the past year. The G20 Summit hosted by India specifically discussed regulation and the impact of an unregulated market.

However, KoinX’s founder doesn’t just anticipate regulation, he also believes that the crypto market could also see more favorable tax regulations for crypto investors in 2023. This would practically welcome more investors and traders into the industry. At the same time, he also expects the TDS for crypto transactions to be reduced.

Dileep Seinberg, Founder of MuffinPay, Crypto Neobank, also said, “Indian crypto investors are eagerly awaiting the Finance Minister’s budget announcement early next month. Tax tweaks or new announcements will be closely followed by traders as they will evolve the crypto adoption in India.”

Speaking about the 30 percent tax on your capital gains, Agarwal added: “It seems that profits from digital assets may have reduced taxes as well because India is moving so fast towards establishing a leaner and more promising Web3 ecosystem and like that current tax regime has reduced the volume of Indian stock exchanges by almost over 90%.”

Additionally, according to Rahul Pagidipati, CEO of ZebPay, 2022 was a pivotal year for the web3 and crypto industry. Despite being a relatively new and untested market, the crypto industry in India has seen rapid growth, with more and more people expressing interest in investing in the asset class. According to a report published by FICCI and EY in 2022, Web 3.0 and blockchain could add a staggering $1.1 trillion to India’s GDP by 2032.

Pagidipati added: “While it is great to see the government taking a step towards regulating VDAs, we call on the government in the upcoming 2023 budget to create a progressive regulatory framework and provide clarity on taxation by introducing the TDS – and capital gains taxes lower and level with other asset classes like stocks and bonds. This will address the ongoing concerns and uncertainties surrounding the industry by providing transparency and helping industry players protect users from any type of black swan events like the FTX collapse. Clear governance and regulatory frameworks will enable more people to invest in VDAs and achieve financial freedom. It will also encourage innovation to transform existing businesses through blockchain technology and create new solutions for the industry to continue to thrive.”

Shivam Thakral, CEO of BuyUcoin, India’s second-oldest crypto exchange, also believes that the crypto sector needs immediate support from regulators to create a business-friendly environment that will enable blockchain companies to grow in India.

Thakral added: “We are pleased to see that our Honorable Minister of Finance is actively involved in creating a global consensus for crypto-related policy, but Indian crypto entrepreneurs look forward to swift implementation of the regulatory framework for crypto exchanges. Crypto investors should be allowed to offset and carry forward their losses to level the playing field for crypto assets, and the TDS exemption limit should be raised to a reasonable level. Such positive steps will encourage responsible mass adoption of digital assets and propel India into the next phase of the Web3 economy.”

Meanwhile, Tarusha Mittal, COO and co-founder of UniFarm and Dapps believes a separate bill for the crypto industry is needed.

Mittal explained that crypto is an integral part of Web3 – but the crypto bill has been pending for years. Although the tax portion has been addressed, Web3, crypto assets, NFTs and the Metaverse require a separate bill for other regulatory matters. Recently, BWA FM recommended highlighting the impact of existing tax regulations such as TDS, income taxes from VDAs and no loss carryforward on the entire industry and sharing its input on appropriate changes that can help address the concerns of the government while also enabling that Web3 sector growth. The government should enact strict regulations for the sector in light of the FTX crisis – especially for centralized entities dealing with crypto.

In particular, Mahin Gupta, founder of Liminal, a digital wallet infrastructure platform, pointed out that the Indian government took its first step towards regularizing crypto with the introduction of a formal tax regime for digital assets. According to Gupta, the formal tax structure gives institutional investors much-needed clarity and guidance to consider digital assets as an alternative asset class.

Currently, India has an estimated 15 million cryptocurrency users while also hosting 11% of global Web3.0 talent and employing nearly 75,000 blockchain professionals with over 450 Web3.0 and blockchain startups operating out of India.

Gupta added that these numbers alone signify the burgeoning web3 ecosystem in India. The Indian IT ecosystem is perfectly positioned to build the Web3 and blockchain economy of the future and poised to play a vital role in fulfilling the Government of India’s vision and mission of ‘Make in India’ to the world.

But Gupta also mentioned that 30% of current crypto investors are under 30 years old. As this is the age when a person begins their journey towards financial planning and stability, we believe the government should streamline the 30% tax to encourage a thriving IT and Web3 ecosystem that encourages innovation and growth in the country will advance. With institutional investors in the picture, secure and compliant storage of digital assets becomes an absolute necessity. India needs professional digital wallet infrastructure companies that are regulated, compliant and licensed to build trust from retail and institutional stakeholders.

In light of this, Gupta said: “We hope that the forthcoming Union budget will create a regulatory framework for digital wallet companies and a single permit for registration and operation in India under the oversight of the relevant regulators. We call for an infrastructure status for digital wallets infrastructure service providers so that they can actively contribute to transforming India into a $5 trillion digital economy.”

Speaking about the drop in trading volume, Pratik Gauri, co-founder and CEO of 5ire said, “Obviously, the 85-90% drop in trading volume is worrying and the fear of not attracting investment in web3 innovative startups will affect the bigger picture. But as I said before, taxation of income and wealth is entirely the responsibility of the government and it has the exclusive right to levy and collect such taxes.”

Gauri believes it is paramount here to remember that any monumental shift caused by Web3 will change the world from a “value capture” economy to a “value creation” economy. She added: “This requires a new set of rules that democratizes access to resources for creators and makes creating value as rewarding as capturing value. This means a direct relationship between human capital and the consumers of its creation.”

Gauri stated that it is vitally important to ensure that no tax regime hampers the development of India’s Web3 talent and the charged innovative environment that India has been experiencing in recent times.

That being said, Seinberg believes that the announcement of CBDCs after their pilot run will also be among the most important developments in the world of finance and payments.

Referring to the overall blockchain industry, Ankit Wadhwa, co-founder and CEO of Rario said, “although 2022 has been a transformative year for the digital collectibles industry, with the increasing popularity of digital trading cards and virtual digital assets with proof of ownership using blockchain technology industry increased in size globally to approximately USD 426 billion in 2022. We also believe that blockchain technology will help India to rank significantly among nations to become the undisputed world leader in this field. We hope that the G20 presidency will also be used to drive innovation in blockchain technology with India at the forefront.”

Seinberg said, “2023 will be a year of caution for investors who will focus on the innovations and developments in the Web 3.0 and blockchain space.”

Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms and not Mint. We advise investors to consult certified professionals before making any investment decisions.

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