Governments around the world derive revenue from taxing individuals and businesses. The financial system of a country is deeply interwoven with its tax system as a country relies on taxes to survive. The advent of cryptocurrencies and now NFTs, have changed the way people hold money and carry on their transactions. Cryptocurrencies have been argued to help promote money laundering and tax evasion and avoidance. While this can be true in some situations, some governments are taking the bull by the horn and pushing for taxing income people and businesses derive from cryptocurrencies and NFTs.
On Tuesday, following the announcement that it plans to launch a central bank digital currency in the financial year of 2022-2033 starting April 1st, India also announced plans to tax cryptocurrencies and NFTs. This comes as the country continues to make progress to recognizing the much-criticized cryptocurrencies as legal.
According to what the country’s finance Minister Nirmala Sitharaman said on Tuesday, income from the transfer of any virtual assets will be taxed at 30 percent. She also proposed a 1 percent tax deduction at source on payments made to purchase of virtual assets, so as to capture details of all such crypto transactions. “No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of digital asset cannot be set off against any other income. Gift of virtual digital asset is also proposed to be taxed at the hand of the recipient”, she said.
Cryptocurrencies, and NFTs, are seeping into the country amid deep regulatory concerns and uncertainty from investors. Other countries, for instance, China, have either banned cryptocurrencies or are giving them a tough time in their country. Globally, cryptocurrencies continue to thrive amid intense fluctuations and aversion from governments. For instance, WazirX, one of India’s biggest cryptocurrency platforms owned by Binance said last month that its yearly trading volume surpassed $43 billion in 2021 at a growth rate of 1,735 percent from 2020.
The massive adoption of cryptocurrency and NFTs in the country has led to the emergence of startups in the sector looking to leverage endless opportunities.
On her proposal to tax cryptocurrencies, the finance minister added that “The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime”.
The announcement by the finance minister has left a good number of people in the dark. Entrepreneurs, venture capitalists and the general public are in the dark about how the government plans to address or treat cryptocurrencies. Are they legal? What would be the regulations around them? For instance, in El Salvador, Bitcoin is a legal tender that can be used alongside the country’s US dollar to pay for goods and services as well as pay for taxes.
The question on the lips of Indians and investors is if launching a tax system for cryptocurrencies and NFTs means the government is recognizing them as legal or if the government just has something up its sleeves that it isn’t ready to disclose just yet. A tweet from the spokesperson for the opposition Congress party Randeep Singh Surjewala read “Ms Finance Minister, please do tell the nation. Is cryptocurrency now legal, without bringing the Cryptocurrency Bill, as you tax the cryptocurrency? What about its regulator? What about regulation of crypto exchanges? What about investor protection?”