Over the past few years, we have all heard the term cryptocurrency.
Many of us are still at sea though about what it is and why exactly is there such a debate over it. To put it simply, cryptocurrency is a virtual digital asset (VDA), which is an alternative form of payment created using encryption algorithms.
The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system. Indians have taken to this crypto tide and heavily invested in it. India tops among 27 countries in crypto ownership. Hence, the debate on regulating the sector — a decision the government is yet to take.
RATIONALISATION OF TAX
In 2013, a cryptocurrency exchange was launched in India. A decade since then and the first sign of legitimacy for this digital asset only came last year. In the budget last year, the government imposed a 30% tax on income made from trade of cryptocurrencies. In 2021, the central government announced a bill for a sovereign digital rupee, but no legislation on regulatory framework is in place yet.
The sector struggled a bit in 2022. Trading volumes crashed 90% after the introduction of the VDA tax last year, the US FTX crash and fraud allegations increased uncertainty. So, the sector expects friendlier policies in this year’s Union Budget. To begin with, they are seeking rationalisation of the very high tax.
“The government felt that this industry is growing, and they still require a lot of awareness to understand and regulate this industry. They wanted to discourage investors, hence the higher tax. But that just moved the investor to the foreign market. So rationalisation of that tax is the need of the hour," says Kiran Mysore Vivekananda, Chief Public Policy Officer of CoinDCX.
REGULATIONS
India has over a 100 million cryptocurrency investors, but the government is adopting a wait and watch approach so far on regulation. This needs to change, believe many key players in the industry. “If there is no regulation, a lot of bad actors come in and that can cause a crisis. When you look at the 2008 crisis, it happened with regulated banks, so anything can trigger a crisis. But the crypto sector regulations can bring in a structured mechanism and with it clarity," says Rahul Pagidipati, CEO of ZebPay.
But many are still wary. Many believe that India is a long way from regulating cryptocurrency and it’s not necessarily because the government and the country’s top bank is sceptical. “We must separate crypto as currency, crypto as an asset and crypto as a platform to do businesses. I don’t think even the market has any clear idea about what kind of regulation they want on crypto as an asset," said former finance secretary Subhash Chandra Garg.
It is a complex sector and regulating it will also be complex, perhaps why the government has been taking time to build consensus and arrive at a decision.
Will Budget 2023 introduce a regressive tax regime for cryptocurrencies? Will there be some relief? Or will the industry be left wanting?
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