As of June 2017, Indians accounted for more than 11per cent of the global cryptocurrency trade.
That is huge, and with it being in trend, I imagine it will be much higher now.
And if we take into account the large numbers of Indian diasporas around the world, especially in the South East Asian nations, the total number of people of Indian origin with a demonstrable interest in this new virtual currency will be further astonishing.
Indeed, crypto-currency has taken the world by storm, with everyone jumping on the bandwagon, with some not knowing what they are getting into.
Punters predict it will change the financial landscape completely, sceptics, on the other hand, believe it will not last and will crash soon, akin to the Dutch Tulip Mania in the 16th century.
Crypto-currency, a form of digital currency is the new ‘digital money’ of the millennium. It is cash that you cannot see nor touch as it is not tangible. However, it is on the internet, mostly stored in a digital wallet and is being traded in some countries.
Cryptocurrency is created by ‘miners’ using high powered computers using massive amounts of electricity. The electricity consumption can be so high that it can cause electricity blackouts, experts warn.
Some countries have banned this form of currency while others have gone ahead to recognize digital currency, amending the law and regulations to suit.
Billionaire crypto-currency trader Mike Novogratz has predicted that the total crypto market cap will reach $2 trillion by the end of 2018.
This is larger than the New Zealand GDP ($185 billion in 2016).
Interestingly, India will have its own crypto-currency called Laxmi coin.
It is a digital crypto-currency created by Raj Dangi and Silicon Valley-based Mitts Daki. They hope to start initial coin offering (ICO) on March 1, 2018.
It is believed they are in the process of clearing legal issues.
India is trying to temper the Bitcoin mania for now until it can regulate this new currency.
India’s Ministry of Finance cautioned investors about the risks of trading in crypto-currencies such as Bitcoin, saying digital currency investments are like “Ponzi schemes”. The Ministry has also cautioned that encrypted transactions in crypto-currency are likely being used for illegal activities such as “terror-funding, smuggling, drug trafficking and other money laundering acts.”
Simultaneously, the Indian Tax Department is actively issuing notices to crypto-currency traders and purportedly, to high net-worth individuals who have been trading Bitcoin in significant numbers.
India is leaving no stones unturned.
Meanwhile, many banks in India have already started a crackdown against cryptocurrency trading.
On Friday, January 19, various big names of the banking sector of India including State Bank of India (SBI), Axis Bank, HDFC Bank, ICICI Bank and Yes Bank have taken strict actions against crypto exchanges.
Experts believe that the government of India is planning to bring in a regulatory framework for crypto-currencies in the forthcoming Union Budget.
This should clear the air on the status of such digital currencies and how they will be taxed.
Crypto-currency environment in our neighbourhood
Meanwhile, here is a look at how different countries in Asia are dealing with crypto-currency transactions.
In Malaysia, where there is a large Indian population, their Central Bank (BNM) recognises that digital currencies are here to stay, given the increasing functionality of its use, growing adoption and its global nature. Therefore, it will not ban crypto-currency transactions. According to BNM’s Deputy Governor, “crypto-currencies are not outlawed in Malaysia because a ban will curb innovation and creativity”, but he also highlights that “its usage has no backing from the public financial institutions.”
In Singapore, the Inland Revenue Authority of Singapore (IRAS) has moved forward and recognised crypto-currency as a service which has a tax and GST impact. Bitcoin is subject to Singapore GST at 7 per cent. Singapore considers that crypto-currency is not a currency in the ordinary sense and therefore, the exemptions given to financial services do not apply for GST purposes.
The IRAS has come up with guidelines on virtual currencies as a mode of payment. The IRAS considers the act of buying goods or services using virtual currencies as barter trade. There are two supplies made – one by the supplier who supplies the goods and services, and another by the person who uses virtual currencies to pay the supplier.
Australia has recently amended their tax laws to introduce GST treatment of digital currency. The amending legislation provides that provide that supplies and acquisitions of digital currency are generally disregarded for the purposes of GST. Supply of digital currency is only recognised for the purposes of GST if the supply is made in exchange for money or digital currency. With this amendment, it ensures that supplies of digital currency receive equivalent GST treatment to supplies of money, particularly foreign currency.
At home, the New Zealand’s Inland Revenue Department is still in scoping stage, i.e. they are studying and getting feedback, working on guidelines for the tax treatment of crypto-currencies. However, as for now, they have said that they may treat it like the proceeds of gold bullion sales that had been held for profit.
Imposing a ban will not make crypto-currency go away, punters will use different jurisdictions, platforms and friends to trade and cash out. Like or not, it is here to stay, at least for some time. By bringing it from under the table to on the table, it will allow the government to tax profits arising from crypto-currency transactions which will lead to increased tax revenue.
The enforcement of crypto-currency regulations, however, is another ball game altogether.
Dave Ananth is an Auckland based Tax Barrister. He was formerly with IRD as a Prosecutor and has extensive experience here and abroad. Dave was admitted to the New Zealand High Court in 1989. He is an expert on Malaysian GST having been involved in their implementation for many years.