Bitcoin has had a stellar run this year, after recently scaling the $20,000 summit. It is now trading at $26,500 after having hit an all-time high of $28,000. Seeing this growth, the government too wants a piece of the action. There are talks that the government is considering imposing 18% GST on Bitcoin trade.
Bitcoin transactions in India are estimated to be a massive ₹40,000 crore and this entire amount has been outside the tax net until now. These transactions could potentially bring in an additional ₹7,200 crore annually states the Central Economic Intelligence Bureau (CEIB), an arm of the finance ministry.
The logic behind the proposal
The CEIB had put forward this proposal to the Central Board of Indirect Taxes & Customs (CBIC) and has suggested that Bitcoin could be taxed as an “intangible asset” and tax could be imposed on all transactions. However, the CBIC feels that the cryptocurrency should be treated as a current asset and GST should be levied on the margins made in its trading.
Though the two are very different viewpoints, both bodies seem to agree that the cryptocurrency should be taxed.
This move is a U-turn from the government’s previous stance where it had banned Bitcoin trading. Imposing a tax on cryptocurrencies would legitimize all transactions and increase the acceptance and usage of cryptocurrencies.
There are many challenges to be addressed before the tax can be levied. For instance, the need for a regulator is paramount. Lack of a regulator could give rise to usage for big money transactions and money laundering.
There are several unanswered questions at this stage. Would the GST rate on Bitcoin be at 18% or would the government consider another rate? How would it be implemented? Only time will tell answer these questions and whether the government would go forward with this. Going forward with this proposal could dampen the hopes of a digital rupee and at the same time give birth to a parallel currency which would bring with it, its own set of challenges and drawbacks.