The high drama on understanding, regulating or legalizing cryptocurrencies in India does not cease to entertain me. Amidst the setting up of various government panels to study the implications of cryptocurrencies, to playing with the idea of launching its own crypto, to barring banking services to all crypto-exchanges in India, to plans of crypto exchanges setting their offices overseas, to numerous court cases challenging government decision (citing banking services as their fundamental right), to dunno where. But this story goes on and on with all the mystery, suspense, fear, disappointment, challenges, fight and thrill in it. Sometimes it will make you cry, at other times you would wanna dance but most of the times you will be on your toes looking at the unfolding of the events one after the other.

What's in the news?

The recent rumours of putting an 18% GST on all crypto transactions was published in a BQ article which was tweeted by its author Nikunj Ohri . According to this news, which was further published by Coin Desk, a proposal is being considered by Central Board of Indirect Taxes and Customs that will be tabled before the GST Council, to levy an 18% GST (Goods and Services Tax) on cryptocurrency trading. Although the news doesn't cite any sources, we have to rely on the mega brands that are sharing it for its authenticity.

The proposal classifies purchase or sale (trading) of cryptocurrencies as "intangible goods" on par with softwares and those facilitating its transactions will be treated as services. So all crypto-exchanges, mining activities, wallet providers will be taxed as services.

Transactions outside India will be considered as Import or Export of goods and Integrated GST will be applied on all cross-border transactions. Services by foreign crypto-exchanges will be considered as import of services and Integrated GST will be applied on them.

But I dunno, what will happen of anonymous transactions on DEX and how those will be regulated?

How to determine the value of your crypto?

The proposal plans to determine value of cryptocurrencies based on their transaction value in INR or the equivalent of any freely convertible foreign currency. But if a cryptocurrency is never converted / transacted for INR and is always traded in cryptos, it will be difficult to determine its true value.

Since cryptos don’t have much intrinsic value and their valuation hinges heavily on their future potential, it is not easy to determine its true present value. If Indian Government don’t recognize any crypto-exchanges, I wonder, how is it going to determine the value of these goods?

Côtes du Rhône theory pegs the value of Bitcoin @$20

Interestingly, some economists have woven some theory around a wine to determine the true present value of Bitcoin. I don’t know the detail methodology but they declared the true value of a Bitcoin as $20. Anything above that is over-priced. However this article also gives other pricing estimates that run as high as $80,000 but that takes into account the future potential.

So if that’s how the assessment is going to be made, I’d pay my taxes happily 😊

Retrospective taxation is a Government Fraud

The news also anticipates that Indian Government may plan Retrospective Tax on cryptocurrency from July 1, 2017 - the day when GST law came into effect..

Retrospective taxation betrays my trust on the Government and makes the case of Blockchain technology stronger.

I first heard about the Retrospection Tax in 2012, when Indian Government lost the $2.5 billion tax battle with Vodafone in Supreme Court. Just a couple of months after that, Indian Government issued a retrospective tax amendment dating back to 1962 in order to catch the Vodafone deal. This tarnished the image and trust of a Government before me. Since that day, it's difficult for me to put my trust on the Government.

When a Government cannot keep its own words, how can anyone rely on Government’s documents, guarantees, schemes, promises or statements? Anything can be changed in retrospective by passing an amendment. To me, all retrospective amendments are an utter joke ...albeit a big fraud!

A person dealing in cryptocurrency wasn’t informed beforehand, of the amount of tax applicable on his / her transactions. So how could he / she take it into account for calculating the profitability! If he / she was aware about the reduced profitability due to heavy taxes, he / she may have chosen to spend his / her time doing something better. But his / her choices are forsaken if retrospective regulation is applied on them.

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Let the Government do what it can do best and let’s innovate new systems to beat the Government! It’s an interesting battle ahead.

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