While Pakistan desperately awaits a report scheduled for April 12 to finalize the legal status of cryptocurrencies and virtual assets, neighboring India has a very different fantasy.
For those who have not come across any relevant news story from India on Feb 1, Indian Finance Minister Nirmala Sitharaman has announced a new tax regime for the country’s Rs. 400 billion cryptocurrency assets with a long-term goal of recognizing virtual assets as a real store of value.
According to the draft regulation submitted to the Bhāratīya Sansad – the Parliament of India – the Reserve Bank of India (RBI) will adopt a central bank digital currency (CBDC) in the next fiscal year. Prior to this, rules will be implemented to tax the legal acquisition of cryptocurrencies at a flat rate of 30 percent.
What is happening in Pakistan against the backdrop of India’s incredible shift from practically banning cryptocurrencies in November 2021 to devising a framework for full adoption?
Union budget decoded: what has India done?
In summary, India’s draft crypto regulation proposes the following:
- Income from the sale of virtual assets is taxed at a flat rate of 30 percent.
- There will be no deduction for costs incurred in transactions involving virtual assets, other than the cost of acquiring such instrument.
- Loss of virtual assets cannot be offset against other taxpayers’ income.
- Loss arising from the digital asset cannot be carried forward to the following year.
- Any payment of proceeds to a taxpayer from the sale of digital assets will result in a one percent tax deduction at source (TDS) for transactions above INR 50,000 per year.
- Reserve Bank of India is set to launch a central bank digital currency (CBDC) pilot project in fiscal year 2022-23.
What assets will India consider to be ‘virtual assets’?
A virtual digital asset, under the proposed new clause, is defined as any information, code, number or token (other than Indian currency or foreign currency) generated by cryptographic means.
A member of the Internet and Mobile Association of India (IAMAI) explained: “Virtual assets include all cryptocurrencies that can be traded in India on multiple platforms, as well as all types of NFTs, both old and new, such as land and other virtual experiences purchased. on metaverse platforms”.
What will India gain from the proposed crypto tax regime?
The new tax structure will treat all cryptocurrencies and tokens as assets of value rather than currencies/legal tender. This is expected to skyrocket India’s current crypto holdings and attract more people to invest in the space.
Consequently, the fiscal clarity is a welcome step for Indian blockchain startups such as CoinDCX, InstaDapp, WazirX and Nuo, which can now freely innovate in the space through aggressive marketing campaigns and beta testing, further cementing India’s impression around the world. as more tech savvy than many realize.
When does India plan to implement the new crypto tax?
Although it is a bit early, Indian media is predicting that the newly proposed cryptocurrency tax will come into effect from ‘Assessment Year’ 2023-24. This means that in FY2022-23, India’s entire cryptocurrency earnings will be taxed at a flat rate of 30 percent.
What should Pakistan learn from India’s proposed crypto policy?
- taxes: Raise a flat tax rate, later pocketed by the central bank, and gradually strengthen forex reserves.
- Subsidy: Have zero taxes on the use of cryptocurrencies in transactions, except for the cost of acquiring crypto assets.
- Legalize: The government should only allow transactions through authorized cryptocurrency exchanges that follow the prescribed Know-Your-Customer (KYC) process to prevent money laundering and monitor transactions.
- Digital rupee: SBP should launch its own digital currency, allowing it to cut costs, prevent fraud and move into a digital economy.
- Fiat/Non-Fiat Parity: Erase the losses incurred in crypto only in crypto
- Sell cryptocurrencies/digital assets to others: Deduct an SBP approved fee on the sale of cryptocurrencies/digital assets.
- Research and decision making: Intensify research and development of projects/startups based on blockchain technology for education and business purposes. This could bring in billions of dollars in investment, as it did in China, Kazakhstan, India and Turkey, which also bolstered forex reserves.
This is what Pakistan can do
Several countries around the world are currently exploring the benefits of having their own CBDCs, with China at an advanced stage of implementing its digital Yuan. Now India has also jumped on the bandwagon and plans to introduce its own CBDC next year.
Similarly, in order to realize its potential in the same space, Pakistan needs to establish a rulebook to govern cryptocurrencies. Second, it should remove any hurdles that could stifle innovation in the game of digital assets, as India has accomplished so remarkably.
If Pakistan decides to regulate cryptocurrencies on April 12, it could start another baby step for the most part. For starters, a committee made up of officials from SBP’s ministries of finance and rights could be formed to establish a basic tax system for crypto-related transactions. In the first instance, they do not have to recognize the financial asset as legal tender. They can allow citizens to trade on state-approved digital exchanges while simultaneously deducting their “pound of meat” (tax) from all transactions.
What has Pakistan actually done in recent months?
Numerous events over the past four months provide unassailable evidence of the degree of confusion and laziness engulfing authorities when it comes to cryptocurrencies.
In January 2022, SBP filed a report with the Sindh High Court (SHC) unequivocally stating that cryptocurrencies are illegal and cannot be traded. Later, Sindh’s Supreme Court ordered the Law and Finance Ministries to conduct a joint study on cryptocurrencies and submit an inclusive report on April 12, justifying whether the said financial instrument should be banned altogether or whether it should be allowed. be used as a real store based on value. within an acceptable legal framework.
In December 2021, the Federal Investigation Agency (FIA) seized bank accounts of 1,064 individuals who had done so through numerous online exchanges, including Binance, Coinbase and Coinmama. In addition, the bank accounts of individuals who had used Binance P2P to buy or sell cryptocurrencies were also frozen.
Subsequently, FIA Director General Sanaullah Abbasi announced that the federal watchdog will approach Pakistan’s telecommunications authority to block websites dealing in cryptocurrencies “to prevent fraud and possible money laundering”.
It was also disclosed that SBP and the Securities and Exchange Commission of Pakistan (SECP) had adopted a “prohibited approach” and warned citizens to discourage them from dealing with digital currencies.
It is sad to see the Pakistani authorities ban instead of regulate any innovation. For a country where citizens are said to own crypto assets worth around $20 billion, the above cases do not paint a positive picture for the future of cryptocurrencies in Pakistan.
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