The Indian government is increasingly concerned about cryptocurrencies, which it blames on terror financing and money laundering. This has been the government’s consistent position, as has the Reserve Bank of India’s.
Despite the RBI’s ongoing ‘ban crypto’ narrative, the government has decided to levy taxes on virtual digital assets (VDAs), which include cryptocurrencies and non-fungible tokens. According to Budget 2022, capital gains from assets will be at 30% crypto tax in India, regardless of the taxpayer’s tax bracket.
The government must involve and collaborate with those in the Web3/crypto/VDA industry to create a favorable environment for growth. India has the world’s second-largest blockchain developer community, and we have the potential to create world-class products from within the country.
Let us not limit ourselves to simply providing services. With relevant and forward-thinking laws, the government must consult industry and facilitate the development of a self-sustaining industry.
The current regulatory framework is inadequate for the Web 3.0 industry. We require a Web 3.0-focused regulatory body to be in charge of the necessary oversight in the VDA markets. Current financial oversight laws may not be adequate for VDAs, but best practices from other bodies can be applied here.
A new Web3/VDA regulation must be created in sandbox mode, which allows rules to be enabled that allow a business to operate in a controlled environment. We can create important practical applications, rules of use, encourage experiments, exclude outside influences, and create scalable and rapidly executable business models in a controlled environment. This is the most effective method for enabling rapid innovation.
Create an Industry-Government Partnership
India has a plethora of promising talent making a name for themselves in the worlds of VDAs, metaverse, blockchain technology, decentralized finance, and other fields. Finance Minister Nirmala Sitharaman may propose regulating the industry in the upcoming Budget by forming a committee of industry professionals, progressive bureaucrats, and government officials. This committee could be tasked with drafting laws, developing new policies, and collaborating with industry to accelerate the adoption of these innovative technologies in India.
It’s been about a year since VDA taxes went into effect, and while it was a step in the right direction, it could be more inclusive. It is past time to reduce the tax burden and implement regulations that will provide greater clarity and oversight. The sandbox approach mentioned earlier can come in handy here.
Tax cuts combined with increased oversight will boost tax collection as traders who have been absent from the market for the past year will return and contribute to the exchequer’s coffers. According to reports, around Rs 60 crore in TDS was collected from crypto trade transactions last year. This figure could have been much higher with over 5 million traders.
The Right Push
India has enormous potential to be a global leader in digital asset management. The upcoming Budget must provide the necessary impetus to this sector in order to give it the necessary boost. We advocate for the formation of a governing body to aid in the development of this sector and to create regulations to ensure the optimal, equitable, and responsible use of technology. It is critical that the government recognises and supports this technology in order to pave the way for more innovation and development, which will ultimately drive India’s economic growth.
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