Twenty million cryptocurrency investors living in India could be breathing easier as they learn that their Finance Minster, Nirmala Sitharaman, just a few days ago declared that India is moving forwards with a proposed regulate and tax policy position on crypto and virtual assets.
A remarkable change of heart and thawing of policy from a government that was drafting legislation to effectively ban crypto as recently as December 2021 after their previous crypto ban legislation was overturned by their Supreme court in 2020.
In its new policy wording, the Indian government is using the term “virtual and digital assets” and in a follow-up question, Minister Sitharaman seemed to retain some discomfort with the term “cryptocurrency”
“Currency rests only with the RBI, everything else is crypto assets and will see 30% tax” she said.
Reading between the lines, Minister Sitharaman may be picking up on her Reserve Bank of India’s jitters that the adoption of crypto in India could dilute the predominance of the Indian Rupee, their national currency.
It is true, that governments around the world are presently grappling with four major policy issues related to crypto:
1. Currency — stability, sovereignty and domestic control of their national currency and how it might be affected by the increasing popularity of bitcoin and other cryptocurrency assets.
2. Economic Freedom — rights of their citizens to buy or sell crypto and virtual assets on a global basis to participate in the blockchain economy.
3. Tax — domestic tax challenges of collecting fair and reasonable taxation on crypto and virtual profits made by their citizens.
4. Hegemony — maintenance of hard-won economic power and influence as a nation and avoidance of “being left behind”.
As to 1. India is well underway with its plans for a Central Bank Digital Currency (CBDC) or Digital Rupee that it is planning to release in 2022/2023. Indicating, that up until recently, it has been running a simultaneous ban on crypto whilst developing their own CBDC. An interesting “defend whilst attacking” strategy that has been also employed by China who plan on releasing their own CBDC, a digital Yuan, in time for their Winter Olympics for use by the athletes.
Regarding 2. Indian policymakers will likely be working out how to appropriately deconstruct its former crypto illegality legislation and replace it with a more progressive digital and virtual rights framework for its citizens that is consistent with its new regulatory objectives.
On 3. India’s proposed 30% tax does not allow for any deductions which could be seen as rigid when compared with Thailand, who have recently walked away from the idea of a specific crypto tax, instead espousing policy that treats crypto gains as capital gains, allowing traders to offset their annual losses against gains made in the same year.
4. In the absence of clear support at a policy level in India for crypto mining, it has been suggested that Indian bitcoin mining is likely to be sporadic, with miners taking considerable investment risks to remain viable.
Meanwhile, given that bitcoin mining in the USA is being aggressively pursued and with Russia keen to follow suit, India will likely need to audit its energy infrastructure and decide if it can find a way to also be a player in the Bitcoin mining economy.
Broadly speaking, India is to be congratulated for moving beyond over simplified policy advocating “crypto bans” in favour of more thoughtful and sensitive regulatory policy that supports its citizens to innovate their way into the fast emerging & globally decentralised blockchain economy.