Indian cryptocurrencies are struggling with the new tax policy as business volumes have dried up and many entrenched cryptocurrency companies are seeking to relocate to cryptocurrency-friendly jurisdictions.
Although many developed countries and even some of its Asian counterparts are actively researching and formulating better cryptographic rules, the Indian government has maintained a “blockchain, not cryptographic” stance.
It may seem as if the government is taking precautionary measures to focus on the underlying technology while keeping its distance from the volatile and risky cryptocurrency market. But based on recent policies and statements by the Minister of Finance as well as sitting MPs, the issue seems to be rather incomprehensible.
The recently introduced cryptocurrency tax law, for example, is strongly encouraged by the country’s gambling law and was introduced and passed in a hurry without any input from stakeholders in the ecosystem. As many crypto experts have warned, the harsh tax policy has driven traders away from Indian stock exchanges.
Many ministers in the ruling government have made false statements against cryptography without providing any evidence to support their claims. Sushil Kumar Modi, a member of parliament for the ruling party, has likened cryptocurrencies to “pure gambling” and called for “higher taxes so that the government can receive revenue and people can be discouraged from investing in this volatile asset.”
The statement is a clear example, not only of a lack of understanding but of a contradiction, as he is talking about discouraging people from investing in cryptocurrencies while believing that it would bring more revenue to the state.
Sathvik Vishwanath, co-founder and CEO of the Indian cryptocurrency exchange Unocoin, told the Cointelegraph:
“The government continues to look at cryptocurrencies as an option for betting and gambling, therefore they are only willing to support their technology and not symbols on top of it.
It is important to understand the fact that crypto and blockchain are quite inseparable. Crypto tokens play a key role in blockchain project operations and blockchain-based rewards.
Shivam Thakral, CEO of BuyUcoin, explained that a fundamental lack of understanding was one of the key reasons for such flawed policies and advocated for dialogue with specialized groups. He told the Cointelegraph:
“Any attempt to create an isolated policy of any country will defeat the whole purpose of blockchain technology, which aims to liberate the world’s financial system. The Indian government needs to set up specialized groups to discuss and debate ways to find a better way to control India’s cryptocurrency boom. The time is right for India to take the lead and become the blockchain capital of the world.
While many blame the government’s lack of understanding on new technologies for being the key reason behind its “blockchain, not encryption” stance, others feel that India’s fintech and payment network is mature enough and that the cryptocurrency layer would not really do much good. . Thus, the government is more focused on nuclear technology.
Trevor Goott, director of Africa and India at Unlimint – the provider of the digital financial interface – told the Cointelegraph:
“The Indian fintech and payment sector is mature and well-served, and cryptocurrencies are just another layer on top, so the net benefit for India is smaller compared to another country that has a less developed payment sector. Crypto will take place in India in the medium term, but the short-term benefits of the other blockchain products will have to be realized first if one has to choose between cryptocurrency or blockchain.
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The Indian government sees cryptocurrencies as a threat
The Indian government clearly sees cryptocurrencies as a threat to its current financial system. The Bank of India has recently warned against cryptocurrency, saying it could lead to a dollar devaluation of the economy.
The Central Bank of India said: “Crypto will seriously undermine the RBI’s ability to determine monetary policy and govern the country’s monetary system.”
In the early days of cryptocurrency, most countries believed that digital assets would pose a risk to their Fiat ecosystem; However, as the industry has matured, it has been proven that cryptocurrencies can coexist with traditional financial markets.
Siddhartha, founder of Intain – a blockchain solution company – told Cointelegraph:
“After talking to several members of the government, they understand blockchain but respond in the short term to increased marketing fees and campaigns that have caused a great deal of noise on behalf of some cryptocurrencies. These campaigns are a cause for concern due to the widespread exposure they create among the public. It is our opinion that government officials generally support the blockchain, which works in a way that provides trust and transparency in the financing of non-bank financial companies.
By accepting the use of blockchain, India can use it to create its own central cryptocurrency without competition from other cryptocurrencies if it succeeds in banning other currencies. Sukhi Jutla, co-founder of MarketOrders – a blockchain-based online jewelry market – told Cointelegraph:
“I think it’s more about the Indian government wanting more control over how this new technology can be used, and they’re clearly worried about how it will affect their current financial system. The more controlling the government is around cryptocurrencies, the more they are afraid of the impact it will have on their current financial system.
Governments can either have a support and cooperation approach that enables innovation to take place or they can stifle and stop progress and innovation if they are still too scared of this technology, and it seems that the Indian government is resorting to the latter approach.
Popular cryptographer and trader Scott Melker, known by his Twitter name The Wolf Of All Streets, told the Cointelegraph:
“As of today, crypto and blockchain are legal and encouraged in the country, but a 30% tax on all cryptocurrency transactions hinders growth. Following this disastrous tax policy, some stock exchanges have reported up to 70% contraction in trading. At the moment, it certainly seems as if India is only interested in what the blockchain can do for the country and not what Bitcoin can do for its citizens.
India’s struggle with cryptocurrencies
The Indian Ministry of Finance was first tasked with drafting a cryptocurrency bill in 2018 and the first draft was introduced in 2019, demanding a total ban on all activities related to cryptocurrencies. Since then, the government has repeatedly changed its stance on cryptocurrency, moving from a general ban to controlling the cryptocurrency market as an asset class. However, none of the proposals has been approved or presented to the Althingi for discussion.
India’s cryptocurrency system has been managing itself for quite some time now. However, the hesitant stance of the Indian central bank, as well as regulatory uncertainty, have prompted many cryptocurrencies to reconsider their future in the country.
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Nitin Agarwal, Founder and Chief Financial Officer of FV Bank, an international digital bank, told Cointelegraph:
“The work of regulators is difficult and even more complex in the cryptocurrency space due to the nature of being censorship-resistant as well as struggling with the rapid pace of innovation. Regulators around the world are working hard to create a regulatory framework that can be applied to digital assets and cryptocurrencies. The approach of the Indian government is realistic in that it does not want to impose too much scrutiny and see all users and companies move to a jurisdiction that is not regulated or lighter.
He added: “The government is waiting to see regulations from the United States and the European Union that they can apply and use best practices to apply to the people of India.
While the majority of ministers in the ruling party have followed the line of the Ministry of Finance, many opposition leaders have called for a review of the flawed tax policy. They have also opposed the idea of banning cryptocurrency and claiming that it is similar to banning the internet.
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