Indian crypto exchanges are cheering the new tax reporting framework released by the Organization for Economic Co-operation and Development (OECD) amid a sharp decline in trading volumes on crypto markets.
They are also hoping the Crypto-Asset Reporting Framework (CARF) of the OECD will prompt the Indian government to frame its own regulations and lower taxes, helping revive the crypto market.
“So far we don't have any concrete rules in India outside taxes; this will be the first attempt. Once the rules have come in place for OECD…, India will be bound to come up with rules,” said Rajagopal Menon, vice president of crypto exchange WazirX.
The framework ensures "the collection and automatic exchange of information on transactions for relevant crypto" assets. It covers exchanges, brokers, and ATM operators that facilitate exchanges between crypto assets.
The framework's due diligence process requires both individual and entity customers to identify themselves. More importantly, it directs crypto asset firms to report to the regulators in the country they do business in.
Exchanges between relevant crypto assets and fiat currencies, along with exchanges between one or more type of crypto and transfers of crypto (including retail payment transactions) assets will need to be reported.
CARF was created against the backdrop of the rapid growth of the crypto industry. In January, the industry touched a market capitalisation of nearly $3 trillion before starting to plummet because of a combination of factors.
In India, the plunge has been even more worrying. After a blockbuster year, 80-90% of trading volumes were wiped out in a few months after the government implemented a 30 percent tax on virtual assets. A move to add a 1% Tax Deducted at Source (TDS) on every transaction led many retail investors to move to international exchanges.
"This is a key week for crypto. G20 ministers and central bank governors are set to review OECD framework on taxation of crypto. The world will be keen to hear India. We have been ahead of the curve on setting a reporting framework, although there’s scope to refine aspects like TDS of 1%," said Ashish Singhal, Co-founder and CEO, CoinSwitch Kuber.
"India is to assume the Presidency of the G20 later this year. It’s an opportunity to shape progressive policies that can make India competitive and spur innovation. There’s also a lot we could take from OECD, like the definition of "relevant assets," Singhal added.
"While a few developed nations have put in place their own crypto regulations and framework, what the industry really needs is a common global standard. After all, crypto is a transformative technology that could profoundly change businesses across the world," he further said.
“The biggest issue is not getting banking access. Once regulations come in place, they too will be bound to service us-- that will help a great deal. Meanwhile, the government will also be able to rationalise the taxes once crypto is defined, as a lot of business is going to foreign exchanges while the Indian industry is getting hit,” said Menon.
In April, the National Payments Corporation of India (NPCI) said it was not aware of any crypto exchanges using the Unified Payments Interface (UPI) for transactions.
Banks and wallets too have pulled support from crypto exchanges, posing a major hurdle in servicing retail investors.
“The Indian government has emphasised on multiple occasions that the only way to regulate crypto is through global cooperation, primarily due to the global transactional nature of crypto. And the new tax framework by OECD perfectly fits in there,” Sharan Nair, co-founder of Web3 startup PYOR said.
But he added: “The bigger question remains on how effectively it can be implemented. Not necessarily because of lack of intent but it's tricky due to evolving dynamics of the NFT (non-fungible tokens) and Defi (decentralised finance) space for example.”
Prashant Kumar, founder of crypto exchange weTrade, said: “The crypto-asset reporting framework released by the OECD is a welcome step as it calls for increased transparency in taxation and global participation for the world of crypto. The framework also recommends that the scope of crypto assets be increased to include exchange platforms like ours.”
In July, Finance Minister Nirmala Sitharaman said cryptocurrencies were by definition borderless and required international collaboration to prevent regulatory arbitrage.
“Therefore, any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards,” she said.
The framework will be presented to Finance Ministers and Central Bank Governors of the G20, which consists of countries including China, India, South Korea, Brazil, the US and the UK at a meeting expected to be held on 12-13 October in Washington.
