Finance ministry working on consultation paper to deal with cryptoassets

The finance ministry is working on a consultation paper to devise a domestic regulatory framework on how to deal with cryptoassets and may invite public comments on it in six months’ time.

“At present, we are engaged in consultation with institutions like the International Monetary Fund (IMF), World Bank, and the Financial Stability Board (FSB). While a global consensus on the issue may take time, we are working on a consultation paper on cryptoassets to formulate our own views on the matter. We will release it for public consultation in about six months’ time,” said a finance ministry official.

While the government has taxed income from the transfer of cryptoassets at 30 per cent in Budget 2022-23, as well as tax deducted at source of 1 per cent on the transfer of such assets to capture transaction details, Finance Minister Nirmala Sitharaman was quick to clarify that this does not make cryptoassets either illegal or legal in India.

The government has also put the crypto Bill that proposed to ban private cryptocurrencies in abeyance, holding that it is in discussions with multilateral bodies to devise a global consensus on the contentious issue. 

In an interview to Business Standard after presentation of the Budget last month, Economic Affairs Secretary Ajay Seth had said that an appropriate regulation requires a fair degree of understanding and simultaneous action with various jurisdictions.

“It can’t be done by any one country. A ban also requires global understanding and consensus. It was expected that in the course of 2021, a Bill would reach Parliament for consideration. But as we have started expanding our consultation with the stakeholder, there is a realisation that a global understanding is needed to provide an appropriate policy response rather than a short-term response,” he added.  

In its joint statement last month, the Group of Twenty (G20) finance ministers and central bank governors, which includes India, said the body is assessing the benefits and risks to global financial stability arising from the rapid development of technological innovations in the financial sector, including cyber risks and the potential for regulatory gaps and arbitrage posed by cryptoasset markets.

It asked the FSB to “accelerate and deepen its work to monitor and share information on regulatory and supervisory approaches to unbacked cryptoassets, stablecoins, decentralised finance, and other forms of cryptoassets”.

The G20 finance ministers also asked the Organisation for Economic Co-operation and Development to complete the work on a reporting framework for automatic exchange of information on cryptoassets, with a view to improve tax compliance.

The FSB last month said cryptoasset markets are fast evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities, and increasing interconnectedness with the traditional financial system. The matter is likely to be discussed again at the World Bank-IMF spring meeting in April.

The Reserve Bank of India (RBI) has publicly expressed strong reservations against permitting cryptocurrencies, arguing that such currencies pose serious threats to the macroeconomic and financial stability of the country.

RBI Governor Shaktikanta Das last month said cryptocurrencies don’t have underlying assets worth a tulip, reminding of the ‘tulip mania’ that took hold of the Netherlands in the 17th century and is widely viewed as the first financial asset bubble.

Days after Das spoke, RBI Deputy Governor T Rabi Sankar compared cryptocurrencies with Ponzi schemes and “may even be worse”, holding that they have specifically been developed to bypass the regulated financial system.

CHARTING A ROAD MAP

• Govt working with the IMF, World Bank and FSB to devise a framework
• Framework to be released in six months for public consultation
• FSB said cryptoasset markets could represent a threat to global financial stability
• RBI has publicly expressed strong reservations against permitting cryptocurrencies 
• Government has also put the crypto Bill that proposed to ban private cryptocurrencies in abeyance