India's government is weighing the option of a bitcoin transaction tax that would add around $1 billion in yearly revenue, a decision various industry participants say is proof of the government’s increasing comfort regarding cryptocurrencies.
According to The Times of India, the proposal presented by the Central Economic Intelligence Bureau (CEIB) to the Central Board of Indirect Taxes & Customs (CBIC) seeks to classify bitcoin as an intangible asset, thus imposing an 18% goods and services (GST) tax on all transactions using this currency. Other suggestions in the proposal include treating bitcoin as current assets and charging goods and services tax on margins made in trading.
The estimated annual value of all bitcoin transactions in the country is INR 40,000 crore (around $5.5 billion), meaning that an 18% GST would bring in tax revenue of INR 7,200 crore or $1 billion.
Leading India-based cryptocurrency exchanges hold the opinion that the financial ecosystem would benefit from a prospective tax structure.
Crypto exchange CEOs such as Sumit Gupta of CoinDCX welcomed the proposal with open arms, seeing it as a positive sign for the future. Gupta said in a WhatsApp chat that the government’s consideration of a tax structure is "...a sign of better understanding of this novel asset class and we are hopeful that this would lead to more positive news going forward,".
CEO of the WazirX exchange, Nischal Shetty, shared Gupta's sentiments and stated that clarity on the tax front could help optimize India's institutional participation in the bitcoin market. WazirX and fellow exchange Bitbns claim that they already pay GST on trading fees.
According to Gaurav Dahake, the founder and CEO of exchange Bitbns, the GST amount paid has increased in the last few months by 500%.
Since the Supreme Court overruled the Reserve Bank of India's banking ban on cryptocurrencies this March, there has been a steady rise of trading volumes on exchanges catering to clients based in the country.
According to TechSci Research, the court win provoked trading to skyrocket by 450% in just two months. Bitcoin marketplace Paxful reported a staggering 883% growth between January to May 2020, from around $2.2 million to $22.1 million. WazirX also grew 400% in March 2020 and 270% in April 2020.
It is yet to be seen if 2021 will be the year in which India clarifies laws around cryptocurrencies, with recent evidence showing that their emergence and rising popularity is due to uncertainty caused by the COVID-19 pandemic. However, fears of money laundering and terror financing have dominated the discussions surrounding cryptocurrency transactions.
There has also been plenty of recent controversy regarding Bitcoin scams. In September, it was discovered that Pluto Exchange, a Delhi-based cryptocurrency platform, had duped as many as 43 investors of more than $270,000. The company's director had collected almost $7 million for the cryptocurrency business.
An estimated 1.7 million Indians and counting trade in digital currencies. Currently, holding cryptocurrencies is neither illegal nor banned, but the Indian government does not recognize bitcoin as legal tender.