India will classify cryptocurrency exchanges as e-commerce platforms, some analysts expect. The move has important potential tax implications. Under the anticipated new regulations, the Indian government will impose 1% GST on platforms used to exchange cryptocurrencies such as Ethereum and Bitcoin.
Calls for regulations on cryptocurrencies in India
As Bitcoin and other cryptocurrencies surge in popularity in India, lawmakers have called for increased regulation.
RBI governor Shaktikanta Das recently cautioned that unregulated cryptocurrencies threaten India’s economic stability.
Some policymakers have floated the idea of banning cryptocurrencies as a means of payment but permitting them to be traded as assets.
The crypto VAT conundrum
Digital currencies pose a novel challenge to tax authorities. Policymakers are still developing frameworks for crypto taxation.
In the UK, for example, HMRC confirmed that transactions that involve cryptocurrencies are taxed as normal. Authorities thus calculate the value of supply according to its GBP amount and then charge VAT normally.
However, UK authorities stressed that the policy is provisional, subject to global frameworks on regulating and taxing cryptocurrencies.
The UK also provisionally said that, at least for now, transactions through crypto exchanges are not themselves subject to VAT.
Taxing profits on cryptocurrencies
Governments are also taking varying approaches to taxing the profits on cryptocurrency investment. For instance, Hungary halved its capital gains tax on cryptocurrency investment. Hungary’s finance minister said the move aims to increase revenue collection. Owing to the high rate, many investors neglected to declare their crypto-related revenue.
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