THE Indian ‘Cryptowar’ may come to an end soon as authorities are pondering on imposing an 18 percent Goods and Services Tax on cryptocurrency trading.
GST to the Rescue?
According to sources close to the matter who pleaded anonymity, the Central Board of Indirect Taxes and Customs is currently reviewing a proposal that aims to impose an 18 percent tax rate on crypto trading in the region. If all things go according to plan, the Board will pass the proposal onto the GST Council for further documentation.
“Cryptocurrencies could be classified as intangible good on a par with software. Its use in illegal activities would have to be dealt with under other laws,” the sources told Bloomberg.
A Rethink Maybe
On April 5, 2018, the Reserve Bank of India passed a mandate barring all regulated financial institutions from the nation from facilitating cryptocurrency related transactions. The apex bank made it clear that all crypto exchanges and virtual currency-powered companies in the country had only three months to shut down their operations.
“If [cryptocurrencies] grow beyond a critical size they can endanger financial stability,” the RBI statement read.
All stakeholders in India’s cryptocurrency space strongly criticised the move. Notably, one of the affected businesses, Kali Digital Ecosystems Private Limited filed a petition against the RBI through its legal partners, Khaitan and Co., claiming that the bank’s decision was illegal and a violation of the laws contained in the Indian constitution. An excerpt from the document reads :
“The move by the RBI has put the burgeoning cryptocurrency sector in jeopardy and may affect the basic rights of such entities to carry on any trade. The circular appears to be arbitrary and unconstitutional since it does not give strong facts as to why RBI is against the business of cryptocurrencies.”
With this latest development, it appears the Indian authorities have finally realized that placing a blanket ban on cryptocurrencies may be to its detriment as there is a lot to gain from the nascent industry.
As contained in the new proposal document, blockchain-based digital currencies will now be categorised as goods and services. Crypto-related transactions done beyond the Indian territory will be charged integrated GST and “would be considered as import or export of goods. IGST will be levied on cross-border supplies.”
As it stands, an 18 percent GST on crypto transactions may still be on the high side considering the volatile nature of the crypto market. The Indian authorities still need to work on the tax percentage as people will always find a way to boycott taxes just the same way they are doing in the United States.
The best solution for India right now is to formulate amenable regulations for its crypto space in order not to cripple innovation in the nation with its draconian policies.