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Sitharaman explains why cryptocurrency had to be taxed

The union finance minister stressed that regulation using technology will have to be so adept and nimble that it should not be behind the curve

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Finance Minister Nirmala Sitharaman today said that people should see the government’s act of taxing income from cryptos and other virtual digital assets as a step to legitimise them. Rather, it is a means to check the source and trail but not to legitimise them, the finance minister said.

“We haven’t said that this is currency. We haven’t said that this has intrinsic value, but certain operations are taxable for the sovereign and that is why we have taxed,” Sitharaman said at a high-level panel discussion organised by the International Monetary Fund (IMF).

“We did announce that on the income that was generated out of the transactions of these crypto-assets will be taxed at 30% and over and above that, there is a 1% tax deduction at the source which is also imposed on every transaction. So through that, we will be able to know who’s buying and who’s selling it,” she said.

The union finance minister also made a strong case for global regulation of cryptocurrencies to tackle the risks of money laundering and terror funding. At a high-level panel discussion organised by the IMF, Sitharaman said as long as the non-governmental activity of the crypto assets was through unhosted wallets, the regulation was going to be very difficult.

However, Sitharaman said cross border payments between countries will become very effective through Central Bank-driven Digital Currencies (CBDC).

“The risk which worries me more on the non-governmental domain is essentially you’re looking at unhosted wallets across the borders, across the globe… So, regulation cannot be done by a single country within its terrain through some effective method and for doing it across the borders, technology doesn’t have a solution that will be acceptable to various sovereigns at the same time applicable within each of the territories,” Sitharaman said.

The finance minister said that crypto risks will have to be differentially approached as the risks can be different for each user, depending on the economy.

During the panel discussion on “Money at a Crossroad: Public or Private Digital Money?” Sitharaman stressed that regulation using technology will have to be so adept and nimble that it should not be behind the curve. It has to be ahead and this is not possible if any one country thinks that it can handle it. She pointed out that unless there’s going to be a global approach to regulating and understanding the technology of cryptocurrencies there is a risk of money laundering.

“I harp on that very much because I think the biggest risk for all countries across the board will be on the money laundering aspect, and also on the aspect of currency being used for financing terror,” she said.

Union Budget 2022-23 proposed a flat 30% tax on income from transactions in crypto-assets and also imposed a 1% TDS (tax deducted at source) on crypto transfers in such asset classes above a certain threshold.

On the CBDC, Sitharaman said it is going to happen sometime in 2022.

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