In India, there is still no regulatory clarity for the cryptocurrency industry, but citizens who use crypto assets should prepare to pay 18% tax on their business operations and transactions.
The bullish rally of Bitcoin (BTC), which raised its price more than 40% above its 2017 all-time high, is attracting everyone's attention, including the Indian government, which has already calculated how much money it can earn annually by taxing Bitcoin and other users. cryptocurrencies, in its territory. The Central Economic Intelligence Bureau of India (CEIB), an entity attached to the country's Ministry of Finance, filed a proposal tax law before the Central Board of Indirect Taxes and Customs (CBIC), which will require the country's citizens to pay 18% in taxes on transactions and business operations with Bitcoin and other cryptocurrencies.
According to estimates presented by CEIB, India handles around Rs. 40.000 crore in cryptocurrency transactions per year, which is equivalent to around $5.400 billion; so, with an estimated 18% GST (Goods and Services Tax) rate, which includes cryptocurrency transactions, the government could collect around Rs. 7.200 crore in taxes per year, equivalent to around $1.000 billion. This is a tax revenue that is not insignificant in an economy like India, which, although it is one of the fastest growing and developing, also has one of the highest poverty rates in the world.
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Cryptocurrencies as intangible assets in India
The Indian government cannot apply such tax measures directly on cryptocurrencies, because the country does not have clear regulations in place regarding this type of digital asset. Thus, in order for the state to be able to impose taxes on cryptocurrency transactions, the CEIB proposes that the government include them within the category of intangible assets, which have no physical or material form, and thus be able to apply GST taxes on the margins obtained in their trade and negotiation.
On the other hand, although the proposed regulation includes all cryptocurrency operations, it really seems to be more focused on Bitcoin than on any other. Bitcoin is the cryptocurrency that is breaking all-time highs by the end of this year. The CEIB proposal states that Bitcoin can be considered as an intangible asset and treated as a current asset to which GST tax can be applied.
India, regulations, bans and fines
India, the South Asian country, has been struggling for some time to establish clear regulations for the cryptocurrency and digital asset industry. Earlier this year, the country lifted the regulations that the Supreme Court of India had implemented 2 years earlier to ban the use of cryptocurrencies in the country. This first regulation prevented commercial banks, financial services companies, and other payment gateways from supporting transactions and business operations carried out with cryptocurrencies.
Thus, when the Supreme Court lifted this regulation, citizens saw a more stable and equitable financial alternative for themselves. For example, the direct use of cryptocurrencies allowed citizens to escape the high commissions charged by intermediaries when sending remittances. In addition, many others were attracted by the potential for Bitcoin to appreciate as an investment asset, a benefit that can help many escape poverty in the country; and finally, there are those who saw the potential of cryptocurrency mining to generate income. But this “golden age” for cryptocurrency users did not last long; as within a few months, the Indian government again presented a new regulation for the digital industry, which would again prohibit the use of cryptocurrencies in its territory.
The government cites the undermining of legitimate currencies, large-scale money laundering activities, and other financial crimes as the main reasons for its need to regulate the digital industry.
Regulations: greater institutional participation?
According to the assessments of leading cryptocurrency exchanges in India, such as CoinDCX and WazirX, the new tax regulations will lead to institutional participation of companies in the country in cryptocurrencies growing. For CoinDCX, the government is pointing out a clearer path that will improve the understanding of this new asset class; for WazirX, it is about paving the way to drive greater institutional participation in the bitcoin and cryptocurrency market in India.
However, for other industry experts, the new regulations that the government seeks to impose do not give legitimacy to either Bitcoin or cryptocurrencies, and are only a way for the state to collect taxes, regardless of where they come from. In this sense, Tanvi Ratna, CEO of Policy 4.0, a crypto-policy advisory company based in India, said the government could well collect taxes from money derived from illegal activities.
Ratna also noted that evading taxes on illegal funds is also considered a crime in India, so the state will effectively collect taxes on all funds managed in cryptocurrencies.
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