When the Finance Minister was presenting the Budget for the next financial year, many were expecting either a proposal banning cryptocurrency or at least a suitable regulation for cryptocurrency trading. But the Finance Minister was content imposing a stiff 30 per cent tax on capital gains and a TDS of 10 per cent on every cryptocurrency transaction.
The Finance Minister clarified in Parliament that taxing cryptocurrencies does not give them any kind of legal status and, according to her, taxing ‘virtual digital transactions’ is the government’s sovereign right. She may be technically correct in saying that she can tax legal as well illegal activities but the latter should not be permitted in the first place, and one cannot compromise on this by taxing such activities.
Incidentally, on February 25, while dealing with a money-laundering case, the Supreme Court asked the Additional Solicitor-General: “We would like you to tell us how you are dealing with persons trading in Bitcoin and cryptocurrency. Is handling cryptocurrency still illegal in India?”
Further, the Finance Minister informed that a decision on whether or not the country will ban cryptocurrencies will be taken after consultations. This is amusing as the decision on this is pending for more than four years.
In April 2018, the Reserve Bank of India enforced curbs on crypto trading. However, cryptocurrency exchanges scored a victory after the Supreme Court endorsed their stand against the curbs put in place by the RBI that effectively outlawed virtual currencies in India.
The verdict came on petitions by Internet and Mobile Association of India and others challenging the RBI circular that said the entities regulated by it were prohibited from ‘providing any service in relation to virtual currencies including those of transfer or receipt of money in accounts relating to purchase or sale of virtual currencies.’
The logic behind the Supreme Court’s decision can be understood when it said: “When the consistent stand of RBI is that they have not banned virtual currencies and when the Government of India is unable to take a call despite several panels coming with several proposals, including two draft Bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”
From this it is clear that the Supreme Court has permitted trading in cryptocurrencies, as the government and the RBI have not taken any concrete decision to ban such transactions. It is unfortunate that even after four years, the government has not made up its mind and it is still non-committal about cryptocurrency trade in the country.
The Finance Minister recently said there is complete harmony between the Centre and the RBI and that they are on the same page on cryptocurrency. The RBI Deputy Governor T Rabi Sankar said recently that banning cryptocurrencies is the most advisable choice for India as they are akin to Ponzi schemes and “may even be worse”.
As everyone knows, crypto does not possess the characteristics of a currency — namely, durability, portability and divisibility — and there is no sovereign guarantee for its value.
Also, crypto does not have any underlying asset to fall back upon and the Deputy Governor is right when he says that it is akin to Ponzi scheme. If the RBI and the government are on the same page, why is there a delay in banning cryptos?
Legendary investor Charlie Munger has said that cryptocurrency should have been banned, calling it ‘beneath contempt’.
India should ban cryptocurrency as soon as possible, especially to protect the interests of small investors who are being lured by catchy advertisements.
The writer is a retired banker