Different nuances of crypto should be evaluated, and tax should be assessed and levied according to the specific circumstance.
During the first phase of the Budget Session 2022, the Union Minister of Finance, Ms. Nirmala Sitharaman announced the new crypto tax regime which subjects all crypto profits to a flat 30% tax.
Speculative Financial Products are Discouraged
Government wants to dissuade people from investing in crypto. That’s why it is resorting to a deterrent tax regime.
It is apprehensive about the currency aspect of crypto. The concern is legitimate as the sovereign needs monetary power to control the economy.
Government has received backlash from the crypto community of India which even started a campaign against the tax regime.
The taxation system treats crypto as speculative assets.
Contrary to that opinion, crypto is not all speculation.
Trading of crypto assets can be deemed speculation, which should be subjected to appropriate taxes.
However, there are certain segments in the crypto industry that do not involve speculation.
Not All Crypto is Speculative
Non-Fungible Tokens (NFT), Play-to-Earn games, Metaverse, etc. do not have speculative transactions. A user can earn money in these segments only on the basis of skill.
So, such segments should not be subject to a flat 30% tax rate. Rather, the traditional tax slab system should be applied to them. Therefore, they should be treated as business income rather than investment income.
Even Member of Parliament, Mr. Sushil Kumar Modi had raised the question, during the Winter Session 2021 of Parliament, that “whether Government is seeking to make a separate legal framework for Non-Fungible Tokens”.
Government does provide room for relaxation for NFTs in Finance Bill 2022.
The specific clause from the Finance Bill reads:
“non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;Finance Bill 2022
So, there could be a chance that certain products or services may be subject to a different taxation system which may not be as harsh. But what is the Government’s interpretation will only be revealed at the time of enactment.
Furthermore, the people who earn their salary in crypto are not engaged in any crypto trading. Taking that into account, their earnings should not be taxed at a flat 30% rate. In this case too, a less restrictive tax regime is asked for.
Government has also not issued any explicit directive about earning money in crypto through export about whether it is allowed or prohibited.
There are different nuances to crypto. Each of them should be evaluated separately so that there is no confusion, and then tax should be levied accordingly. The segments which involve speculation should be kept different from the ones which involve skill.
Crypto Tax Should Promote Entrepreneurship
India is known for its prowess in Information Technology (IT).
It is time to focus on other industries too. Web3 is empowering content creators, game developers, and artists. All of them can now monetize their skills through the trillion-dollar crypto market.
The tax regime is proving to be a blessing in disguise for crypto exchanges but could hamper innovation in India. Earlier due to regulatory uncertainty, crypto entrepreneurs were moving abroad to register their businesses. Now they have a further impetus to do so.
Government discourages speculative products as they can harm an individual’s financial wealth. But, at the same time, it has to make sure entrepreneurship is not hindered.
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