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India’s 1% Tax on Crypto Trade Ineffective for High-Frequency Trading

Posted on September 25, 2023

Shardeum’s co-founder and president stated that regulation in India has experienced diverse outcomes. Shardeum’s President and co-founder, Nischal Shetty, talks about the situation at Messari Mainnet.

As legislators try to zip up crypto with new regulations globally, India has implemented a 1% Tax Deducted at Source (TDS) that has choked specific traders. Nischal Shetty, Shardeum’s president and co-founder, believes this situation has shown the need for regulatory modification. 

India TDS Approach Unsuited to High Frequent Trading

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As the country makes sense of its regulatory line of action to the crypto sector, Nischal Shetty believes that high-frequency traders cannot afford to lose a fraction each time they sell. Speaking to Andre Beganski at Messari Mainnet in New York, he also stated that this situation has resulted in numerous problems.

At the Messari Mainnet, Nischal claimed that requesting traders to keep aside 1% of each transaction for tax reasons presented considerable problems to high-frequency trading companies and daily traders. This is despite its appearance as a small carve out.

A high-frequency trader cannot lose a fraction each time they trade, which has resulted in numerous problems.

Despite high-frequency trading (HFT) being one of the numerous tactics for use by financial institutions, it illustrates market approaches at their most progressive. Utilizing algorithms that evaluate data and carry out trades within a short time, HFT can convert small opportunities into profitable gains across several trades and an abundance of assets.

However, for India’s institution, Shetty claimed that a TDS of 1% can increase the bear markets’ risks. Due to the minimal margins, the tax negatively impacts HFT companies. As such, he labeled HFT with crypto as uncommon in the nation. Further, he claimed that a 1% TDS is not terrible for a retail trader who might buy and keep tokens for 6-12 months. He also highlighted new regulations concerning know-your-customer (KYC) conditions in India as proof of advancement.

Indian Legislators Prioritize Consumer Protection in Crypto Guidelines

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Concerning the creation of crypto guidelines, Shetty stated that Indian legislators have focused on consumer protection, with efforts to have power over businesses, for instance, exchanges. Nevertheless, the effect of a 1% TDS on crypto dealings depicts the problems of what seems to be a universal regulatory strategy.

Shetty stated that he would not claim it has been all remarkable, but it has also not been too bad. Despite India being some years behind, it has embraced steps toward regulation. He also said that the patterns of crypto adoption among the nation’s retail traders are behind the United States by 2-3 years. Despite the region’s regulators getting their act together in 2018, India has made crypto progress internationally.

India Leadership Supporting Global Crypto Guidelines

In August, prior to the G20 summit in New Delhi, Narendra Modi, India’s Prime Minister, suggested the need for international crypto guidelines. Besides ensuring that crypto guidelines and laws are not governed by one nation, he claimed the discussion must go ‘past financial stability to take into account its wider macroeconomic impacts, particularly for upcoming markets.’

From Shetty’s perspective, international crypto guidelines are sensible. He also claimed that it is remarkable that India is embracing a concerted approach to regulation amid the advanced development of its regulations.

India has been quite spoken concerning guidelines not functioning in isolation. It is crucial to have internationally accepted policies, which the country has been advocating for.

The push for harmonizing global crypto guidelines is gaining steam globally as financial regulators seek to seal loopholes caused weak or absent scope towards the sector. However, the realization of global crypto framework would take several years given the resistance witnessed within individual countries led by the US. Outside the European Union where the block is set to implement Markets in Crypto Assets (MiCA), attaining regional framework would confront several hindrances.  

Editorial credit: Tanmoythebong / Shutterstock.com


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