Fresh off gaining their freedom to operate unencumbered, Indian cryptocurrency exchanges are seeking new tax guidance from the government. Earlier today, the India Times reported that several of the country’s notable crypto exchanges have written to the Reserve Bank to decry the state of tax guidelines for their space.
GST Inclusion or Not?
As the report explained, their letter pointed out that this regulatory obscurity has prevented commercial banks from serving crypto exchanges. Given that this was the entire point of seeking their freedom to operate in the first place, it seemed a tad counterproductive.
The landmark case between top Indian crypto industry stakeholders and the Reserve Bank revolved around the subject of commercial banking servicing. As the Reserve Bank itself highlighted in an argument, it simply warned commercial banks of the dangers of dealing with crypto exchanges.
Whether it was a warning or not, the lack of banking services stifled crypto exchanges’ operations for months. While they’re now free to operate once more, they explain that they still can’t access banking services due to the tax situation. The India Times added that the exchanges have written to the Indian High Court too.
In particular, the exchanges are seeking clarification on the classification of their operations. Their inclusion in the country’s Goods and Services Tax (GST) regime will depend on whether they will be seen as dealing with goods, currencies, commodities, or services.
Praveenkumar Vijayakumar, the chief executive of crypto exchange Belfrics Global, stated: “If the digital assets are not exempted from GST, the digital currency exchanges in India are going to have a standoff with the tax authority.”
He explained that the ideal situation would be an exemption from the GST, as an imposition of this tax would render most exchanges insolvent sooner or later.
Sidharth Sogani, the head of crypto research firm Credbaco Global, also faulted the RBI for not releasing any notice directing banks to serve crypto exchanges after the Supreme Court’s landmark decision.
Long Road to Zion
While their fight appears to be a valiant one, Indian exchanges might have to wait out another extended period before getting what they ask for. As we’ve seen with just about every country, developing tax guidelines and clearance for crypto exchanges is a Herculean task at best.
Even in the United States, the Internal Revenue Service (IRS) developed tax guidance last year and had to make clarifications on several fronts. Definitions remained a tad murky, and experts faulted the IRS for lacking a fundamental understanding of several crucial crypto concepts.
Then, there’s the problem of clarifying what cryptocurrencies are. This has also proven to be a challenging task for financial regulators and policymakers. While some believe that commodities, others refer to digital assets as securities. The question of whether they can be termed “currencies” is yet another issue. The Reserve Bank’s perceived disdain for cryptocurrencies prefaces all of this.