Get crypto-clear, GST clarity can follow
GoI is reportedly examining ways to impose goods and services tax (GST) on cryptocurrency transactions, including mining of these digital assets. This is a grey area, even if this follows the budget proposal to levy a flat 30% tax on gains made from the sale of virtual digital assets (VDAs), and charge 1% tax deducted at source (TDS) on transfer of such assets above certain thresholds. Lawmakers must ensure clarity while bringing crypto trades under the indirect tax regime. Crypto exchanges pay GST on the transaction fee collected from their customers.
GST laws do not make a distinct mention of cryptos. Will these digital assets qualify as goods or services? Who would be liable to pay GST on crypto transactions? On what value would GST apply? What would be tax treatment for the exchange of one crypto to another? These issues must be resolved before proposals are taken to the GST Council for approval.
The tax treatment on cryptos varies across jurisdictions. In Australia, prior to July 1, 2017, sales and purchases of digital currencies attracted GST. But this was rolled back as consumers who used digital currencies were effectively taxed twice - once on the purchase of the digital currency and again on its use in exchange for other goods and services (that attracted GST). However, any business in relation to digital currency could attract GST. India, with an estimated 15-20 million crypto investors with holdings of over ₹15,000 crore, must avoid any flip-flop on the tax treatment of cryptos.
Countries are also drafting new tax laws to support (or pressure) the crypto mining industry. Crypto mining requires computers with special software specifically designed to solve cryptographic mathematical equations. The prospect of gaining newly minted crypto coins makes mining a huge draw. But RBI continues to voice serious concerns around private cryptos saying these could cause financial instability. GoI, keen to encourage fintech innovation, must give proper legal backing to cryptos and let RBI regulate them. A clear GST framework can follow.
Source: The Economic Times