Progressive regulations and taxation around crypto can boost the economy

Cryptocurrency is a topic that gets a lot of discussion around the world, and India is no exception. As one of the countries with a large number of crypto investors, India is still figuring out how to effectively regulate and tax digital currencies. Progressive regulation and taxation are key to supporting the industry and promoting its potential to boost the economy.

Why progressive regulations matter
Regulations play a crucial role in maintaining stability and security in the crypto market. Clear compliance and security policies give businesses and individuals the confidence to participate in the industry. This can also lead to more innovation and investment in the industry, which can be a major driver of economic growth.

Appropriate taxation of crypto transactions is also important to fuel growth and provide governments with a new revenue stream. It can help prevent illegal activities such as money laundering and tax evasion, which can protect the economy from negative effects. Additionally, clear regulations can promote better transparency and accountability in crypto, paving the way for new companies to participate.

In 2018, the Reserve Bank of India (RBI) issued a circular banning banks from trading with individuals and companies dealing in virtual currencies. However, in 2020, India’s Supreme Court overturned the ban and the government has since been working on a regulatory framework to better protect the interests of the common man.

Union Budget 2021 – Taxation of VDAs
In the Union Budget 2021, the Indian government introduced a system to tax virtual digital assets (VDAs) with 30% profit tax and 1% TDS. However, India is not the first country to tax cryptocurrencies. Countries such as the United Kingdom, United States, Italy, Canada and Germany have also implemented the taxation system on VDAs. The Indian government has also ensured that compliance for Know Your Customer (KYC) processes is in place. Also, it has established the guidelines for virtual currency advertising with disclaimers to protect the public from potential risks. Despite the challenges that global stock exchanges and companies have faced over the past year, Indian stock exchanges and investors have not been greatly affected due to the regulatory framework and compliance measures in place.

What’s in store for the crypto industry this year?
While this was a progressive move, the industry now looks forward to a more progressive tax regime in the upcoming Union budget. Classifying cryptocurrencies as an asset class and removing them from the classification of speculative instruments is the need of the hour for this maturing asset class. As an asset class, offsetting profits against losses incurred would encourage greater participation from retail and institutional investors. The current TDS of 1% on each transaction also discourages the adoption of cryptocurrencies. Hopefully the government will find a way to address these concerns. The forthcoming EU budget may indicate the regulatory stance that India intends to take and this may be discussed further in the G-20 talks.

Progressive regulation and taxation can support the growth of the crypto industry and encourage its potential to stimulate the economy. Governments must strike a balance between encouraging innovation and protecting consumers to ensure regulations are effective without slowing industry growth. The crypto industry in India and around the world is looking forward to a more progressive tax regime that will encourage greater participation and adoption of digital currencies.

(The author is CEO and co-founder of Mudrex, a global crypto investment platform)

(Disclaimer: Experts’ recommendations, suggestions, views and opinions are their own. These do not represent the views of Economic Times)


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