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.
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.