“In a single stroke, the (Union) government has managed to hamper India’s cryptocurrency future. While there is no clarity on how the government intends to regulate the space of cryptocurrency, Finance Minister Nirmala Sitharaman has made certain changes to the regulation of virtual digital asset (VDA) class that will greatly hamper India’s Web 3.0 space,” BSP MP Ritesh Pandey said during a debate on the Finance Bill, 2022 in the Lok Sabha on March 25.
Pandey questioned the finance minister about the rationale behind the 1% Tax Deducted at Source. “It is critical to understand that what the Finance Minister has done by introducing this 1% on the blockchain industry, it is going to hamper the way business is done,” he said.
He also cautioned that the TDS will breed “red-tapism” and intends to destroy the nascent asset class. In conclusion, he predicted that the government will be forced to cut back on the proposed tax in the future.
The debate on the Finance Bill 2022 provides an insight into the flaws of the government’s decision to tax cryptocurrency assets. The issues highlighted by the opposition MPs in turn, could compel the government to clarify the reasons behind its decision to introduce a high tax rate.
What were the issues raised during the debate?
Crypto is used to pay bribes and buy drugs: BJP MP Nishikant Dubey
BJP MP Nishikant Dubey pointed out that the conversation around crypto has been taking place since 2012; he added that every Reserve Bank of India (RBI) governor since 2012 has said that crypto is used on the dark web to purchase drugs, and is another form of ‘hawala’.
Dubey stressed that crypto is being used to pay bribes and buy drugs in today’s world. “The entire world is troubled by the trend. Nobody knows who runs crypto,” he argued. The MP from Godda constituency of Jharkhand lauded the move of introducing a tax on crypto investments, and termed it as a significant step. He was also in favour of a blanket ban on cryptocurrencies.
Indian Govt should send out a clear signal: Congress MP Gaurav Gogoi
Congress MP Gaurav Gogoi said that the tax rate of 30% on crypto transactions is intended to discourage people from trading or occupying or holding cryptocurrencies or NFTs “The government still is sending out mixed signals and it should send out a clear signal,” he recommended.
Gogoi reasoned that it is imperative for clarity to come soon because many Indians are trading in cryptocurrencies, on account of which many exchanges have sprung up.
“I appeal to the government to have two approaches in mind. One approach should be that if you want to treat crypto as a sin and want to have a high tax on it and ban it eventually then be specific and have that. But bear in mind that a lot of people would indulge in crypto and indulge in these operations in the dark.” — MP Gaurav Gogoi
The second approach recommended by Gogoi was for the government to take a leaf out of regulations drafted by countries like America or Japan on cryptocurrencies at large.
Banning crypto is akin to banning the internet: BJD MP Pinaki Misra
BJD MP Pinaki Misra expressed his dismay at the comments of MP Nishikant Dubey advocating a crypto ban. He explained that the government has notioned cryptocurrency as a sin activity. “It’s as though cryptocurrency dealing is something simple,” Misra said.
“The government has spoken in multiple voices on this (issue). There is rampant confusion. A ban on cryptocurrency is the equivalent of banning the internet. It is an idea whose time has come.” — MP Pinaki Misra
Misra also pointed out that the RBI Governor has gone on record to say cryptocurrencies are just hot air. “There is hot air on behalf of the RBI governor who is in charge of issuing digital currency, which will be equally, I think, hot air. And the government, which wants to, therefore, tax the hot air. The Government has gone on for a 30% slab on the basis that it must be at a higher listing than equity gains because it is some kind of sin.”
Misra said that the government did not heed appeals from the crypto industry to keep TDS at 0.01%. He added that the Finance Standing Committee was expecting the crypto bill in August or September 2021.
“It’s still not ready, which means the mandarins of the Finance Ministry are totally at sixes and sevens.” he averred.
“It’s symptomatic of complete confusion in the minds of the government. I would urge the government to get a proper task force with professionals to draft this bill because this bill is going to be a disaster otherwise,” Misra said.
Crypto tax before Crypto bill: Shiv Sena MP Priyanka Chaturvedi
Priyanka Chaturvedi*, in a debate in Rajya Sabha, said that India is the only country which has taxed crypto before regulating it with a bill first. “One cannot call it a bad thing just because one does not understand it. All disruptive technologies will disrupt policy, it is our rsponsbility to get a headstart and draft a regulatory framework.”
She averred: “We are living in the world of web 3.0, either we choose to bite the bullet or we dodge the bullet. If we bite the bullet, we will be able to create an enabling ecosystem for our youth, empower them and the economy. If we choose to dodge the bullet, we can continue to feel great that Indians are doing well abroad.”
Finance Minister stands firm on 1% TDS in her rebuttal
Finance Minister Nirmala Sitharaman retorted that the government is not sending any confused signals. She said that the consultations were underway and they are contemplating their position on cryptocurrencies.
Sitharaman said that the government decided to introduce the tax as there’s a lot of reported activity and a lot of transactions are taking place. “The government made its position clear saying: We shall tax the money being generated out of it,“ she noted.
On TDS, she said that the feature was to ensure authorities are able to track transactions.
“It’s not an additional tax, it’s not a new tax; the taxpayer can always reconcile it with the total tax that he has to pay to the government. There is no new taxation because of the TDS. The TDS principle has always been same,” she said.
India’s crypto tax regime
The Finance Bill 2022 passed by the Lok Sabha this week paves the way for a 30% tax on income from all virtual digital assets (VDAs). Finance Minister Sitharaman made this announcement in her Budget 2022-23 speech in Parliament on February 1, 2022.
She clarified that taxation does not lend legitimacy to the unregulated crypto sector and that the government will come out with a bill after the conclusion of stakeholder consultations. Sitharaman also said that there will be 1% TDS on payments made for the transfer of digital assets in order to capture transaction details. The new provisions are set to come into effect from April 1, 2022.
The government also recently clarified in the Lok Sabha that losses incurred from one kind of virtual digital assets (VDAs) cannot be offset against the gains from any transaction involving another VDA while computing tax.
Indian Crypto Industry remains unconvinced
The Indian cryptocurrency industry is not happy with the prohibitive nature of the country’s taxation structure.
Nischal Shetty, Founder and CEO, WazirX, said that the 30% tax rate will be “detrimental to the investor growth that the industry has been seeing so far”.
“This move will make day-traders incapable of saving on taxes even if they aren’t in the income tax brackets currently. Furthermore, not allowing investors to offset losses from one crypto trading pair by gains from another type will further deter crypto participation and throttle the industry growth,” he said in a statement.
Shetty said that he was in favour of regulation but “it is poised to do more harm than good” in its current form.
“It will also fail to provide desired results for the government. It can result in cascading participation on Indian exchanges that adhere to the KYC norms and lead to a rise in capital outflow to foreign exchanges or to the ones that aren’t KYC compliant. This is not conducive for the government or the crypto ecosystem of India.”
The industry stakeholders may approach the Supreme Court in order to seek relaxation from the structure. A decision has not been taken yet.
This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.
*Disclaimer, March 30, 12:20pm: The post was updated to include comments made by Shiv Sena MP Priyanka Chaturvedi during a debate in the Rajya Sabha.
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