Nirmala Sitharaman, the Finance Minister of India, today called for global regulation of cryptocurrencies to tackle the risks on money laundering and terror funding.
Speaking at a high-level panel discussion organised by the International Monetary Fund (IMF), Sitharaman said as long as the non-governmental activity of the crypto assets was through unhosted wallets, the regulation was going to be very difficult.
However, Sitharaman mentioned that cross border payments between countries will become very effective through Central Bank-driven digital currencies.
In her opening remarks, the IMF managing director Kristalina Georgieva said:
“We are at the crossroads around how fast, how far, and in what proportion, but I see this as a one-way street in which Digital Money is going to play a bigger role.”
Georgieva also praised India’s well-targeted policy mix for allowing the Indian economy to stay resilient despite limited fiscal space.
Here’s why the Indian Govt imposed 30% crypto tax, 1% TDS
The Union Budget 2022-23 proposed a flat 30% tax on the capital gains derived from trading at crypto exchanges, as well as a 1% TDS on crypto transfers.
Finance Minister said that taxing income from cryptos and other virtual digital assets should not be seen as a step to legitimize them. Rather, it is a means to check the source and trail but not to legitimize them, the Finance Minister said.
“We haven’t said that this is currency. We haven’t said that this has intrinsic value, but certain operations are taxable for the sovereign and that is why we have taxed,” stated the finance minister.
The finance minister made it clear that the main purpose of taxation as of now is to keep a track of the crypto buyers and sellers.
“We did announce that on the income that was generated out of the transactions of these crypto assets will be taxed at 30 per cent and over and above that, there is a 1 per cent tax deduction at source which is also imposed on every transaction. So, through that we will be able to know who’s buying and who’s selling it,” she said.
Indian crypto exchanges’ trading volume plunges after new tax rule
Crypto community in India is not so happy with the taxation policy of the government. A recent data on the trading volume of Indian digital asset exchanges revealed a significant decline in trading among Indians just ten days after the new crypto tax rule implementation. India’s new crypto tax rule came into effect on April 1.
A research data report from Indian blockchain analytic firm Crebaco revealed that the trading volume on top Indian crypto exchanges has declined as high as 70% in the first 10 days of April.
Many experts, exchange operators, and other industry stakeholders had warned against the ill effects of the new crypto taxation policy.
Many countries have taken liberal approach towards crypto assets and a few have also pro crypto policy. But, the Indian government is taking restrictive approach.
Crypto risks will have to be differentially approached
Sitharaman stressed that crypto risks will have to be differentially approached as the risks can different for each user case, depending on the economy.
She said, “The risk which worries me more on the non-governmental domain is essentially you’re looking at unhosted wallets across the borders, across the globe.”
“Regulation cannot be done by a single country within its terrain through some effective method and for doing it across the borders, technology doesn’t have a solution which will be acceptable to various sovereigns at the same time applicable within each of the territory.”
Nirmala Sitharaman
Why the world needs a global regulation on cryptocurrency?
During the panel discussion on ‘Money at a Crossroad: Public or Private Digital Money?’, Sitharaman stressed that regulation using technology will have to be so adept and nimble that it should not be behind the curve. It has to be ahead and this is not possible if any one country thinks that it can handle it.
She pointed out that unless there’s going to be a global approach at regulating and understanding of the technology on cryptocurrencies there is a risk of money laundering.
“I harp on that very much because I think the biggest risk for all countries across the board will be on the money laundering aspect, and also on the aspect of currency being used for financing terror,” she said.
India Highlights Its High Digital Adoption Rate
On the first day of the panel discussion, Sitharaman spoke about India’s digital performance and the government’s efforts to build digital infrastructure over the past decade, emphasising the country’s growing digital adoption rate.
Sitharaman said, “If I use 2019 data, the digital adoption rate in India is about 85 percent. But globally, that same year, it was only somewhere near 64 percent. So the pandemic time helped us test and prove that it is simple to use, common people can use it, and adoption was proven.”
During her speech, the finance minister also mentioned that India had the largest startup ecosystem. “One in four startups belong to fintech and are increasingly becoming unicorns. 20 unicorns belonging to fintech in last 2-3 years,” she said.
On the timelines for CBDC, the finance minister said it is going to happen sometime this year.
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