Reserve Bank of India (RBI) governor Shaktikanta Das has
called the crypto trade "nothing but gambling" and supported a
complete ban, arguing that their "value is nothing but a
make-believe." At a 30 per cent crypto tax, the Indian lobby is already in
a state of despair, and any adverse policy move could spell a death knell to
this nascent industry.
Recent remarks by Minister of State for Finance Pankaj
Chaudhary in Lok Sabha didn't help either. He called for international
collaboration to prevent regulatory arbitrage.
Now, with a new budget for 2023 around the corner, the fear
of a ban has only increased. But some experts wonder if a ban is really
possible.
How Realistic Is A Crypto Ban?
In 2020, in the IAMAI vs. RBI case, the Supreme Court stayed
the central bank's order prohibiting banks from providing support to entities
or persons dealing with cryptocurrency.
The court set aside the circular on the ground of
"proportionality" but did not question RBI's power to issue such a
circular.
The court found that RBI's action was disproportionate as
the virtual currencies were not banned in the country, and it could not prove
any damage possible to the banks due to cryptos.
The apex court order does not restrict RBI from passing new
rules. The government can ban cryptos through a new law, but such rules can
only be challenged for violation of fundamental rights, says Purshottam Anand,
founder of Crypto Legal and India Blockchain Forum member.
Crypto Tax Is A Test
It is reported that Rs 32,000 crore worth of crypto trading
volume was shifted to foreign shores between February and October 2022 after
the government's 30 per cent cryptocurrency tax.
The report by the New Delhi-based think-tank Esya Centre
said that of the three tax measures announced by the government last year, the
one percent tax deduction at source (TDS) was the most destructive for the
industry. Indian crypto exchanges lost about 81 per cent of their trading
volume between July 1 and October 15, 2022, when it was officially implemented.
Bottom Line
Cryptocurrencies are hard to regulate because of their
decentralised nature. However, "India already has a very restrictive
crypto regime, with few, if any, legitimate use cases. A complete ban would
only be in spirit, as verifying ownership in a wallet is hard. So a ban would
be easy to circumvent," says Utkarsh Sinha, managing director of Bexley, a
financial advisor.
The government's tax rate serves as a deterrent. It also
gives the government the flexibility of not having to take a stance on crypto.
"The Indian regulators have taken the smartest stance by keeping the
underlying regulation grey while taxing gains," he says.
"I expect the budget to continue to ignore
cryptocurrencies, as it's a prudent policy for now. It might have some mention
of taxing gains, and there might be some norms regarding marketing securities
and other instruments that invite public participation, but it would be
surprising if the latter happens as it inadvertently gives some form of
legitimacy to cryptos," adds Sinha.
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