Unlocking India’s virtual digital asset potential

The virtual digital assets (VDA) space is buzzing with activity and these encompass everything from regulatory changes to new and inventive investment instruments like Bitcoin Spot ETF.

The changes began towards the end of 2023 as the market gained momentum and exhibited clear indications of an impending bull market. However, the VDA service providers (like crypto exchanges), have been seeking more clarity in terms of regulation, control, and taxation. As we lead into the Union Budget 2024, here is a look at the major demands of the crypto sector.

Government’s stance
The Indian government had indicated its willingness to adopt geography-agnostic regulations for VDAs. This forward-looking stance comes in the wake of the publication of the IMF-FSB Synthesis Paper of September 7, 2023, signalling a readiness to embrace the opportunities presented by the digital assets revolution. The VDA sector seeks global benchmarks and regulations as this is an asset class that is highly technology intensive and is not bound by physical geographies. However, a worrying factor could be the RBI’s stance against VDAs and crypto assets. The government’s stance seems prudent and we wish the RBI also adopts the same pragmatic approach that the Union government has taken.

Powering a transformation
We find ourselves at a pivotal juncture, akin to the transformative era of Indian economy’s liberalisation in 1991. It is a moment when the potential benefits of embracing virtual digital assets could be immense. We should not close our gates to it. Imagine how India would have been if the government had not embraced economic liberalisation then. The point is that India, as a country, should not miss the VDA bus as others make gains.

Tax reforms
A longstanding plea from the VDA community revolves around the reduction of tax rates on these assets. In the 2022 Budget, the government imposed a 30% tax on profits and a 1% TDS on sale of crypto. Our demand is that the TDS should be reduced to 0.01% and the tax on profits should also be rationalised. Such a reduction will actually bring in more people into the ecosystem without compromising on data collection and the government will also have a larger taxable base.

Regulatory measures
The VDA sector is evolving and so should the regulatory framework. All key Indian exchanges have implemented enhanced KYC and enhanced due diligence (EDD) for its customers. As a follow-up, more than 30 crypto companies in India have registered as a reporting entity under the Financial Intelligence Unit (FIU) with key focus on compliance and tracking. It is time that we have a sophisticated and nuanced regulatory framework for the asset class. Also, the Budget should announce a regulatory body on the lines of RBI for banks and SEBI for the stock market.

Favourable environment
The onus is on the government to incentivise investors who are ready to build companies in the larger Web3 space (which includes crypto, blockchain, NFTs etc). For this, the Budget could allow for a special purpose vehicle (SPV) that promotes and ensures single-window clearances to all new entrepreneurs coming into the space.

Information and dignity
There should be an emphasis on educating all levels of government, including police and law-enforcement agencies, about the nuances of digital assets. By ensuring that these entities are well-informed and equipped to interact with the crypto ecosystem, we can guarantee that it is treated with the dignity and respect it deserves. Such steps will not only bolster investor confidence but also pave the way for India to become a global leader in the crypto domain.

In short, calibration of taxes, regulatory clarity, and a conducive environment could bring about heightened participation by investors and customers and steer India towards a progressive and globally competitive landscape.

It is our collective hope that the government seizes this opportunity to unlock the true potential of the virtual digital asset sector, paving the way for responsible and sustainable development.

(The writer is the founder and CEO of crypto exchange platform Giottus)