India adopted harsh crypto tax laws on Friday, and moments after the bill's passage Nischal Shetty, the CEO and founder of WazirX, one of India's biggest exchanges, pulled no punches, saying, "We have entered a period of pain."
"This is almost like not letting the industry function, and what will happen is what happened to the drone industry where eventually the largest drone industry is in China," said Shetty, perhaps the most prominent face in crypto in India. "Now all the foreign tech is going to dominate in India and we don't want that happening in crypto."
He added the move is especially bad for India's younger people.
"What we care most about is our customers. Millions earn a living through crypto. During the [coronavirus] pandemic, they lost jobs and crypto was one of the reasons people survived. We are concerned about the loss to their livelihood, their dreams ... these are people in the 18 to 30-year-old category," said Shetty.
Shetty's biggest objection was to the 1% tax deducted at source (TDS), which would be levied any time an Indian buys or sells crypto. "The 1% TDS will kill liquidity, which means ultimately profitability goes down for everyone. It's a lose-lose," Shetty said.
What people will do now, according to Shetty, "is find ways to not be part of the [domestic] system because people are not going to leave crypto."
"This will push people to other channels – peer to peer, one-to-one trading. As an industry, we had worked so hard to make sure everyone comes through the right way, millions through KYCs [know your customer protocols]. Now the other fear is that this will go back to the gray market or non-KYC approach," Shetty predicted.
The move to not allow crypto losses to offset gains is even worse than the 30% capital gains tax on crypto profits itself, said Shetty. He noted that in some cases Indian investors could lose more money than they invested because of the way the new taxes work.
"No one will risk that," Shetty said.
Shetty, though, put up a brave face, saying, "We cannot give up." He cited the example of the 2018 effective ban by India's central bank to disallow banks from working with crypto exchanges. Back then, an appeal to the Supreme Court eventually resulted in a favorable verdict for exchanges.
"With the banking ban, we went after it. It took two years but eventually the right thing happened. I think here, too, the right thing will happen but time, that period of pain, that will be there."
So, will WazirX, as one of the largest exchanges in India's crypto industry, approach the Supreme Court this time?
"If that is an option, it is a last, nuclear approach. Dialogue is going to be the best way so that everyone gets comfortable and understands the nuances of crypto as a sector, which is not understood well right now," he said.
CoinDesk had earlier reported that several crypto industry leaders confirmed they would consider appealing to the Supreme Court if the proposed crypto taxes were adopted as law.
CBDC is not competition for crypto
Historically, regulatory moves by the government regarding crypto have leaned towards deterrence rather than encouragement, with India's burgeoning crypto industry having to survive blow after blow.
First came the central bank "ban" and then legislation prohibiting “all private cryptocurrencies in India.” Later, the global euphoria over cryptocurrencies in 2020-2021 saw the government draft legislation "enabling cryptocurrency to be used as an asset" even as reports indicated that violations would result in a non-bailable warrant and/or fines and jail time.
One popular theory for why the government continues to stall crypto adoption is it believes crypto represents competition for India's planned central bank digital currency (CBDC). The day India's crypto tax proposals were announced, Feb. 1, India said it would introduce a CBDC by FY 2022-23.
So is the government delaying crypto adoption until its CBDC is ready? Shetty says he thinks the fundamental idea that cryptocurrency would compete with a CBDC is inaccurate.
"There is a difference between CBDC and another crypto. One is a currency and the other is an asset. CBDC is not a crypto killer. It is a currency. Why will you hold CBDC? You will use it for transactions, but are you going to say you will invest?" Shetty said.
‘Crypto will survive’
Despite the government's refusal to adopt suggestions from the industry, Shetty remains optimistic.
"Discussions are still ongoing with the government. We are still waiting to have an industry meeting with the government," Shetty disclosed.
The disclosure is significant. Between the announcement of the tax proposals and their becoming law, a period of close to two months, the government met with individuals and one or two crypto exchanges, but Shetty confirmed that not one meeting occurred with the industry as a whole or its representatives.
Yet, he still feels the needle is moving towards more of an understanding between government and industry.
Asked how he can be so confident the government will come around when previous suggestions over discussions have been ignored, Shetty said that "ultimately, technology always emerges, it always wins."
India has not ruled out banning crypto altogether, and on Friday the finance minister said that "consultations are going on as to whether we want to regulate it to some extent or really very much or totally ban it."
However, Shetty is confident the government "will never ban it," but there "will be periods of pain. We just have to remove it quickly."
According to Shetty, "We are in a competition with the global world. If this was localized I would be very worried. So eventually, the government will realize it's losing market share and opportunities," which, if not grabbed, "will be taken by other countries" such as China or the U.S..
"Right now what we are working on is sending information and pointers to the right authorities, but what has been missing is a constant dialogue, the kind we see in the U.S.," Shetty said.
Shetty concluded that while things look grim at the moment, he's optimistic some kind of agreement will be reached.
"Crypto is a technology that will survive no matter what," Shetty said. It's just about "how fast do we want as a nation to grow in this sector?"
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