The central government of India has been known to openly bash cryptocurrencies from the very beginning. Lack of knowledge and information in a bubble of confusion over Bitcoin, associated cryptocurrencies directly with the black market and illegal activities. As a result, the rushed RBI 2018 proposed ban on crypto trading left the Indian traders uncertain about the future for over two years.
While the Supreme Court’s verdict ruled out the ban in favor of the traders, in March 2020, any regulation over trading in cryptocurrencies was nowhere in sight. However, the surge in the Indian trade activity has been quite palpable since then. The pandemic year that quashed some of the largest economies in the world, seemed to have ultimately paved the way into what one can only call the beginning of mass adoption of digital currencies on private blockchain networks.
The past years established several advanced Defi protocols in the market, along with leading financial and technology experts like Elon Musk (now the richest man in the world), openly expressing their trust in Cryptocurrencies. Where the major part of the globe was rallying towards a more positive outlook on cryptocurrencies by the end of 2020, the Indian government went with an almost hysterical approach, camouflaged in a series of fancy digits.
Proposal: 18% GST on Cryptocurrency
The Central Economic Intelligence Bureau of India, in communication with the Central Board of Indirect Taxes and Customs, proposed to levy 18% GST on crypto trading. The Times of India reported that the tax would generate INR 7200 crores in revenue per annum. The proposal though wrapped in a blanket of heavy figures created alarm across the crypto community.
As much as the craving for legal regulations on cryptocurrencies is driving through traders in India, heavy taxation can lead traders to shift on to foriegn exchanges and P2P platforms. While crypto trading in India is estimated to be worth INR 40,000 crores per annum, hefty taxation may not exactly be the best step forward just to fill the gap in the annual revenue.
Accepted or Abandoned: An Asset with Unfair Taxation
On a bittersweet note and at a price of massive tax figure, cryptocurrencies would finally have legal recognition in India. The digital assets would hold a higher chance to be treated as an asset class or a commodity like Gold, Grains, Oil, etc. once they are officially taxed. However, it’s still a long shot for cryptocurrencies to be recognized as a legal tender- a trusted mode of payment, like in Japan.
Demand for a set of regulations has always been a high priority for traders. And for a long time, it did seem like the Indian government was oblivious to this need. Since the proposal of GST would first require a regulatory framework on cryptocurrency before imposing a tax, India could see a more regulated market.
“A regulatory framework needs to be in place for cryptocurrency before taxation is considered. Once that is in place, the question would be about its treatment for tax purposes. Currency is not subject to GST and the total value of cryptocurrency should not therefore be covered by the tax. Only the currency exchange fee, or brokerage, should be subjected to GST," said Abhishek Jain, tax partner, EY.
Unfair Taxation
Where the need for a regulatory framework is an obvious add on to the proposed tax imposition, the need for GST on cryptocurrencies is altogether considered null by crypto leaders like Nischal Shetty. The chief executive officer of WazirX expressed his concern over the non-feasible amount and that no other country has imposed such a tax percentage.
“It would mean investors need to get 18% appreciation to justify their purchase," Shetty said.
The massive figure on the tax percentage gained quick response by exchanges, pointing out the amount already paid in GST on fees and commissions. Moreover, even in the category of an asset class like Gold itself with 3% GST, 18% is way higher than standard rates. Being traded and treated as financial assets, Bitcoin and other cryptocurrencies should be taxed like any other monetary asset.
Conclusion
Undeniably, Cryptocurrencies receiving any form of legal recognition in India will already be a historically marked event. However, nothing can be said for certain. The lack of follow-up on the news has left uncertainty in the air. One thing is definite though- boycotting cryptocurrencies is something a nation like India cannot afford.
With Bitcoin stretching towards a new All-time High almost every day, the global crypto market broke the intangible mark of $1 Trillion just over a week ago. Where Bitcoin’s 2017 parabolic surge followed by its meteoric fall is still etched in history, the market at the time was governed by a bubble of FOMO.
The prominent advancement and adoption of cryptocurrencies are leading the current bull this time along with the leading payment system Paypal listing cryptocurrencies on its worldwide used platform. With the rest of the world’s leading economies finally coming around the benefits of cryptocurrencies, can India really be expected to stay oblivious?