Crypto Investors Remain Positive Despite 30% Tax

Indian crypto investors have welcomed the government's decision to tax profits from digital assets' transactions, even as the tax rate is a steep 30 per cent, underscoring hopes the pending crypto bill will regulate the market rather than ban private coins completely. 

The Reserve Bank of India favours a complete ban on cryptocurrencies. It has made that explicit in repeated messages highlighting concerns relating to macroeconomic and financial stability from virtual currencies, the challenge of exchange management, monitoring and regulating such assets.  

Still, the government and a few members of RBI's central board have sought a more nuanced view on digital assets, keeping in mind the technological developments.  

Investors, top cryptocurrency exchanges currently operating in India, and industry experts, too, opine that reforms to the pending crypto legislation with more comprehensive consultations can take India to the forefront of blockchain technology.  

They also have welcomed the government's plans to regulate the crypto market and formally help develop underlying technologies. 

"Crypto is financial innovation. Provided a reasonable regulatory framework, crypto legislation should boost investors' confidence. The ease in transactions can strengthen entrepreneurial confidence and catalyse trade and investment," said Ms. Lekha Chakraborty, Professor at the National Institute of Public Finance and Policy, New Delhi.

"My hunch is the new crypto bill will focus on the regulatory framework rather than a blanket ban," she added.  

The proposed bill on the Cryptocurrency and Regulation of Official Digital Currency, in its current form, suggests a complete ban on all private coins as a payment method in India.   

But the bill has been pending for well over a year and has investors worried about the lack of clarity on the outcome of the proposed crypto assets legislation. 

Finance minister Nirmala Sitharaman's suggestion that cryptos are not currencies and only the ones issued by a central bank can be called currencies, has added to investors' concerns.

But the government's decision to tax the profits from crypto and digital assets' transactions has led many investors to believe these assets are finally being accepted. 

Some experts warned that taxing the profits from digital assets' transactions does not legitimise these assets, and one must wait for the bill and its details for clarity. 

"Taxing an asset doesn't make it legitimate. We need to wait for further announcements regarding the regulatory framework. And the statement by RBI Governor that 'cryptos do not have any underlying value, not even tulip,' reveals that crypto investors are doing this at their own risk," said Ms. Chakroborty. 

"Using tax policy to make crypto legal and venerable, or using tax to curb speculative assets like crypto as such assets have implications on financial stability - the policy intention behind the taxation narrative on crypto is unclear. These are not broad-based taxation even; it's confined to only high-risk, high-return-oriented investors," she added.

Still, the vast potential of the country's increasing investor base and the staggering growth of the digital assets market have helped investor sentiment, even as the tax rate is set at a steep 30% rate on profits.  

"Crypto is a high-risk, high-return asset. High tax rates may not be a significant determinant for such investors. However, financial integrity is crucial in such transactions to pre-empt any bubbles," added Ms. Chakraborty.