Returning to the Indian example, what are the worldwide ramifications of this crypto tax? On the plus side, supporters applaud the government’s first-ever “recognition” of the blockchain ecosystem, which is estimated to be worth $16 billion. This puts an end to rumors of an official ban on cryptocurrency, which would have affected not only the 15 crore Indians who have transacted cryptocurrency at least once (India has the world’s seventh largest crypto owning population), but also official authorities, who would have had to double down on tracking an underground economy that is already difficult to regulate. more.
However, it is naive to believe that this legitimizes crypto in India because any asset, even if unregulated, is subject to taxes. The Indian finance law is wide enough to include ‘Virtual Digital Assets (VDAs),’ but these assets must be thoroughly described in order to justify a blanket 30% tax on cryptocurrency in the country. Crypto introduces issues that were not anticipated during the Finance Bill’s preparation, such as the gray area of token ‘transfer.’ Mining coins using sophisticated algorithms results in miners receiving coins, which may or may not be considered an active transfer. How will the acquisition cost be determined in order to compute the actual capital gain? Should these gains be taxed at the same 30% rate?
The crypto tax in India also has the potential to frighten early investors who do not fall below the 30% tax band. While the recipient’s gains will be taxed at 30% regardless of income, losses cannot be carried forward, which would ideally have decreased the tax burden, discouraging investors even more. Perhaps that was the purpose all along; after all, cryptocurrency allows individuals like us to generate financial gains (read how here), deal across borders with ease and transparency, and become a part of what is undoubtedly the future of digital payments, without relying on central authority.
(In fact, the mysterious Satoshi Nakamoto stated the need for crypto as follows: “The core problem with traditional currency is all the trust that is required to make it operate.” The central bank must be trusted not to debase the currency, but fiat currency history is littered with violations of that confidence.”)
A stringent regulation regime will push corporate interest out of India to more flexible places like Singapore or Portugal in a global economy where governments differ in their views on crypto while private enterprises invest more and more in R&D in the field. In fact, most economies currently have crypto taxes ranging from 2-15%.
Given that some of the biggest names in IT are interested in the area, this might result in a massive FDI outflow. Furthermore, the blockchain ecosystem is developing several use cases such as DeFi, Decentralized apps (DApps), and Web 3.0 gaming, all of which have a big market in India. Encouraging investments and market growth in such industries will not only give the government additional tax money, but will also help India develop a futuristic industry, giving it a first mover advantage as an Emerging Market. Instead, a disproportionate tax increases the possibility of market collapse, culminating in total loss of tax revenue due to tax evasion or moving destinations.
Needless to say, crypto and digital progress hold great promise for India’s $5 trillion goal. If current rules are modified to be more friendly, India will be able to capitalize on these new-age capabilities.
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