- The government is considering the introduction of a regulatory regime for virtual or crypto currencies like Bitcoin, that would enable the levy of the Goods and Services Tax on their sale.
- Bitcoin’s value has skyrocketed over the last six months
- The circulation of virtual currencies has been a cause of concern among central bankers the world over for quite a while now.
- Reserve Bank of India had also cautioned the users, holders and traders of virtual currencies including bitcoins.
- Earlier this year, India’s Ministry of Finance (FinMin) established an interdisciplinary committee to study the legal framework surrounding virtual currencies.
What is crypto-currency?
- Bitcoins is one of the kinds of Crypto currency recently in news.
- Crypto currency , which planned to be brought under a regulatory regime, is a digital currency.
- It allows transacting parties to remain anonymous while confirming that the transaction is a valid one.
- It is not owned or controlled by any institution including both government institutions and private institutions.
- Multiple numbers of such currencies are used globally such as Bitcoin, E thereum, and Ripple.
- Crypto-currency can also be used for a lot of legal activities depending on which retailers accept such currency.
- The market cap for all crypto-currencies has crossed $100 billion, with most of the increase coming in the past few months.
- On April 1, the total market cap was over $ 25 billion, representing a 300% rise in just 60 days.
- Crypto-currency can also be used for a lot of legal activities depending of which retailers accept such currency.
A look at how crypto-currencies such as Bitcoin are regulated globally shown as below:
- In Australia, capital gain is applied while GST is not applicable.
- In United States: In New York, capital gain is applied but sales tax is not applicable.
- Japan is exempt from consumption tax but subject to capital gain tax.
- Britain is exempt from VAT but capital gains tax is applied.
- In China, taxation is not applied.
Whether cryptocurrencies should be ban or not? Advantages of such currencies:
- It will encourage the development of a supervision ecosystem.
- Promote a formal tax base.
Disadvantages of such currencies:
Payments by such currencies are on a peer-to- peer basis and there is no established framework for recourse to customer problems, disputes, etc.
What is Bitcoin?
- Bitcoin is a digital currency created in 2009 that uses decentralised technology for secure payments and storing money that doesn’t require banks or people’s names.
- Santoshi Nakamoto, a secretive internet user, invented bitcoin in 2008 before it went online in 2009.
- Till December 2016, there were around 16m bitcoins in circulation. In March 2017, the value of a Bitcoin stood at $1,268 for the first time.
- Bitcoins were recently in news when the two global cyber ransomware attacks –WannaCry and Petya took place. Attackers sought about $300 in bitcoin as ransom.
- One bitcoin today is worth as much as 60 grams of gold.
Uses of Bitcoins:
- Bitcoin is used for multiple purposes including funding companies, investing cash and transferring money without fees.
- It is commonly associated with criminal activity such as drug dealing, cyber crime and money laundering,
- In 2015, RBI published a financial stability report on disruptions in financial technology. In the report, it highlighted the importance of ‘private blockchains’ which have the potential to transform how bank back-end operations functions,
- as well increasing the payments.
- The digital currency can be used to move money inexpensively across borders within a matter of minutes without even having a bank account.
India’s take on bitcoin:
- The recent move of demonetization of Rs 500 and Rs 1000 notes by the government in order to curb black money problems in the country, also pushed people to go digital transactions and use online wallets instead of cash.
- After demonetization India saw a rise in bitcoin demand.
Are Bitcoin legal in India?
- Even countries such as Japan and Russia had legalised the use of Bitcoins, India, despite being at the cusp of a digital revolution is yet to officially recognise the cryptocurrency.
- Reserve Bank of India, had earlier cautioned users, holders, and traders of virtual currencies including Bitcoins.
What will be implications if Bitcoins are legalised in India?
- Bitcoins would fall under the purview of RBI’s 1934 Act.
- Bitcoin investors would be taxed.
- RBI would issue guidelines regarding investment and purchase of Bitcoins.
- If any foreign payment is made through Bitcoins, it would fall under the purview of FEMA Act.
- Returns from investment in Bitcoins would be taxed.
- The new regime may possibly bring trading under the domain of the stock market regulator, Securities and Exchange Board of India (SEBI).
- The idea is to treat such currency in a similar manner like gold sold digitally.
- It can be treated on registered exchanges in a bid to “promote” a formal tax base.
- It will keep an eye on their use for illegal activities such as money laundering, terror funding, and drug trafficking.
Bitcoins have potential to fight counterfeiting in developing countries like India, but not if transaction fees are higher than the living wages.