Proposal to levy 18% GST alarms crypto exchanges2 min read . Updated: 31 Dec 2020, 07:36 AM IST
- Hefty taxation will shift transactions to international exchanges, warn stakeholders
Cryptocurrency exchanges have expressed alarm after a report said that the government is proposing to levy hefty goods and services tax (GST) on their trading.
To be sure, the report, which appeared in The Times of India on Tuesday, has been described by a finance ministry official as “speculative" and “unfounded".
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Cryptocurrency exchanges fear transactions will move out to international exchanges or to peer-to-peer websites. Exchange executives also said regulatory clarity will give legitimacy to crypto trading.
Exchange executives have been quick to point out that they pay GST on fees and commissions levied by them on crypto trading.
The report in The Times of India said the Central Economic Intelligence Bureau (CEIB), in a communication to the Central Board of Indirect Taxes and Customs, has proposed a GST of 18% on cryptocurency trading. Crypto trading is estimated to be worth ₹40,000 crore per annum, which would net the government around ₹7,200 crore in revenue.
However, CEIB is an economic intelligence agency and even if the proposal for a change is approved by the finance ministry, it has to make its way through the GST Council, a federal body, to enter the statute book.
Experts said taxation can follow once a regulatory framework for cryptocurrency is in place.
“A regulatory framework needs to be in place for cryptocurrency before taxation is considered. Once that is in place, the question would be about its treatment for tax purposes. Currency is not subject to GST and the total value of cryptocurrency should not therefore be covered by the tax. Only the currency exchange fee, or brokerage, should be subjected to GST," said Abhishek Jain, tax partner, EY.
According to some experts, if crypto were to be treated as an asset class like gold, the total value may be subject to tax, but in that case the tax rate, as in gold (3% GST), may be lower than the standard rates.
Arjun Vijay, co-founder of Chennai-based Giottus Cryptocurrency Exchange, said bitcoin and other cryptos are traded like financial assets by investors and hence they should be taxed in the same manner as other financial assets.
“Ideally the tax on them should be less than 1%. Otherwise trading will shift to international exchanges or peer-to-peer. India will lose out on revenues if a GST of 18% is levied," said Vijay.
Nischal Shetty, chief executive officer of WazirX, India’s largest cryptocurrency exchange, said an 18% GST on cryptocurrency transaction amount is not feasible and no other country has such a tax. “It would mean investors need to get 18% appreciation to justify their purchase," he said.
Crypto exchanges also emphasized that they pay GST on services rendered by them. “At WazirX, we have already been including GST in the trading fee paid by users. Our deposit and withdrawal fees are all inclusive of GST," said Shetty.