India’s government has still not come to an agreement as to how to regulate Bitcoin, but after toying with the idea of banning the digital currency, it seems like a goods-and-services tax will be implemented.
As it stands, there is no formal recognition of Bitcoin within India’s governmental regulations, however, that is about to change. Officials have been meeting for months to develop a framework that will be suitable for the digital currency to operate within.
There was a stage where a complete ban on the currency was tabled, as it struggled to fit into the existing legislation, but that option was never popular, even for the regulators.
Taxation Aids in Regulating Illegal Activities
Details are now emerging from a local publication that a goods-and-services tax may be the correct way in which to deal with the boundary breaking Bitcoin. A new regime would see Bitcoin brought under the stock market regulator, the Securities and Exchange Board of India (SEBI).
The proposed idea is to treat the digital currency similar to gold in terms of taxation. It will be required to be traded on registered exchanges and therefore a formal tax will be applied. All the while, regulators will be able to keep an eye on illegal activities such as money laundering, terror funding, and drug trafficking.
A senior government official told The Hindu:
The discussion on whether crypto-currencies should be banned or regulated has been on for some time. The pros and cons for both aspects were put forth in the meeting chaired by Finance Minister Arun Jaitley last month.
Legitimate Use vs. Illegal Activity
The key balancing act for the Indian government is to ensure that Bitcoin does not become a major tool for illegal activities within its borders. There are many instances where Bitcoin has been used for purchasing illegal goods and services, such as those that were offered on the Silk Road. It has also been used recently as a payment method for ransomware attacks.
However, Bitcoin is also being utilized in many legal markets and is a burgeoning business in and of itself.
Another government official privy to the current development explained:
Banning will give a clear message that all related activities are illegal and will disincentivize those interested in taking speculative risks, but it was pointed out it will impede tax collection on gains made in such activities and that regulating the currency instead would signal a boost to blockchain technology, encourage the development of a supervision ecosystem (that tracks legal activities and may also assist in tracking illegal activities) and promote a formal tax base.
Less Rigorous Regulations
This form of taxation and regulation appears to be quiet, stern and controlling – a stark contrast to Bitcoin’s decentralized nature. However, India is also thinking about limited regulations.
In a limited regulated system, Bitcoin would still not be officially recognized, but those who use the digital currency illegally would still be punished. Blockchain technology itself, however, would be treated differently and promoted for its alternative uses – such as Ethereum’s smart contracts.
Do you think that India’s proposed solution strikes a happy medium between personal privacy and government oversight? Let us know in the comments below.
Images courtesy of The Hindu, Max Pixels