Progressive regulations and taxation around cryptocurrencies can boost the economy
Why are progressive regulations important?
Regulations play a vital role in maintaining stability and security in the cryptocurrency market. Clear guidelines for compliance and security give businesses and individuals the confidence they need to participate in the industry. This can also lead to increased innovation and investment in the industry, which can be a major driving force for economic growth.
Adequate taxation of crypto transactions is also important to promote growth and provide a new source of revenue for governments. It can help prevent illegal activities such as money laundering and tax evasion which can protect the economy from negative impacts. Additionally, clear regulations can promote better transparency and accountability in cryptocurrencies which paves the way for new businesses to participate.
In 2018, the Reserve Bank of India (RBI) issued a circular banning banks from dealing with individuals and companies that deal in virtual currencies. However, in 2020, the Supreme Court of India overturned the ban and the government has since been working on a regulatory framework to better protect the interests of the common man.
Union Budget 2021- Taxation on VDAs
In the Union Budget 2021, the Government of India introduced a Virtual Digital Asset Taxation (VDA) system with a 30% tax on earnings and 1% TDS. However, India is not the first country to tax cryptocurrencies. Countries like UK, USA, Italy, Canada and Germany have also implemented VDA tax system. The Government of India has also ensured that compliance for Know Your Customer (KYC) processes is in place. In addition, it has established guidelines for advertising virtual currencies with disclaimers to protect the public from potential risks. Despite the challenges faced by global stock exchanges and companies over the past year, Indian stock exchanges and investors have not been heavily impacted due to the regulatory framework and compliance measures in place.
What is the cryptocurrency industry expecting this year?
While this was a progressive move, the industry is now looking forward to a more progressive taxation system in the next Union budget. Classifying cryptocurrencies as an asset class and removing them from the speculative classification is the need of the hour for this maturing asset class. As an asset class, offsetting gains against incurred losses would encourage greater participation from retail and institutional investors. Furthermore, the current 1% TDS on each transaction discourages the adoption of cryptocurrencies. So hopefully, the government will find a way to address these concerns. The forthcoming EU budget may indicate the regulatory position that India intends to adopt, and this can be further discussed in the G-20 discussions.
Progressive regulations and taxation can support the growth of the cryptocurrency industry and promote its potential to revive the economy. Governments must strike a balance between promoting innovation and protecting consumers to ensure that regulations are effective without stifling industry growth. The cryptocurrency industry in India and around the world looks forward to a more progressive taxation system that encourages more participation and adoption of digital currencies.
(The author is CEO and co-founder of Mudrex, a global cryptocurrency platform)
(Disclaimer: The recommendations, suggestions, views and opinions provided by the experts are their own. These do not represent the views of Economic Times)