Why progressive regulations are important?
Regulations play a vital role in maintaining stability and security in the crypto 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 great driving force for economic growth.
Proper taxation of crypto transactions is also important for promoting growth and providing 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 the crypto which pave a way for new businesses to participate.
In 2018, the Reserve Bank of India (RBI) issued a circular banning banks from dealing with individuals and businesses dealing 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 interest of the common man.
Union Budget 2021- Taxation on VDAs
In the Union Budget 2021, the Indian government introduced a system of taxation on virtual digital assets (VDAs) with a 30% tax on gains and 1% TDS. However, India is not the first country to tax cryptocurrencies. Countries like the United Kingdom, the United States, Italy, Canada, and Germany have also implemented the taxation system on VDAs. The government of India has also ensured that the compliance for Know Your Customer (KYC) processes are in place. Also, it has set the guidelines for advertising virtual currencies with disclaimers to protect the public from potential risks. Despite the challenges faced by global exchanges and companies in the last year, Indian exchanges and investors have not been greatly affected due to the regulatory framework and compliance measures in place.
What is the crypto industry expecting this year?
While this was a progressive move, the industry is now looking forward to a more progressive taxation system in the upcoming Union Budget. Classifying cryptocurrencies as an asset class and removing it from the classification of speculative instruments is the need of the hour for this maturing asset class. As an asset class, offsetting gains against losses incurred would encourage more participation from retail and institutional investors. Also, the current 1% TDS on every transaction discourages the adoption of cryptocurrencies. So, hopefully, the government comes up with a way to solve these concerns. The upcoming Union Budget can indicate the regulatory stance that India plans to adopt, and this can be further discussed as part of the G-20 discussions.
Progressive regulations and taxation can support the growth of the crypto industry and promote its potential to boost the economy. Governments must strike a balance between promoting innovation and protecting consumers to ensure that regulations are effective without stifling the growth of the industry. The crypto industry in India, and around the world, is looking 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 crypto investing platform)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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