Foreign crypto exchanges in India may have to pay 18% GST as the government mulls over taxation
- The Indian government may ask foreign crypto exchanges to pay 18% Goods and Services Tax (GST) on transactions with its citizens.
- For local crypto exchanges, the 18% tax is usually built into the trading fee charged to customers — akin to how brokerages change conventional stock trading.
- India was also reportedly mulling over charging a 2% equalisation levy on transactions with foreign crypto exchanges earlier this month.
AdvertisementWith the Indian government mulling over new laws to regulate cryptocurrencies in the country, the indirect tax department is looking into whether overseas exchanges need to pay the Goods and Service Tax (GST) at 18%.
The 18% slab is meant for capital goods and industrial intermediaries, among other times, while the highest slab of 28% applies to luxury goods, like automobiles. It’s the same as the tax on brokerage with trading in conventional shares on the stock market.
Indian crypto exchanges already charge their users GST. The tax is built into the trading fee that exchanges add to the buying price of Bitcoin, Ethereum and more. The exchanges pay GST to the government as part of their general tax payments.
However, crypto exchanges based outside of India are currently curtailing paying these taxes, according to the Economic Times (ET).
And, in order to bring them under the tax umbrella, the Indian government could categorise overseas crypto exchanges with Indian users as Online Information Database Access and Retrieval (OIDAR) services.
What is OIDAR?
OIDAR rules state that any digital or data service provided to Indians or people based in India should be taxed, even if there’s no physical interface. This way the supplier of a service from a non-taxable territory can be liable for GST payments.
The government justifies the tax as a way of leveling the playing field. If a service is being provided by local players, and by overseas players, one should not be paying more tax than the other. “The overseas suppliers of such services would have an unfair tax advantage should the services provided by them be left out of the tax net,” says the government circular.
The only thing that is required for the law to come into effect is that the ‘subject’ of the supply — that is, the consumer — should be located in India.
Questions still unanswered
AdvertisementWhile it may make sense to have local and overseas crypto exchanges on the same level, there is still an ongoing debate over whether cryptocurrencies are a financial asset, security or a currency.
It’s also unclear whether the 18% GST slab will be applicable to all transactions or only on the margins. Right now, the 18% GST charged by conventional brokerages is only on the margins or the commission taken by the company — not the entire transaction.
A report from last month had also argued that exchanges outside the country may be subject to a 2% equalisation levy as well, which would raise the price of cryptocurrency for Indian buyers. This tax is meant to have foreign entities doing business in India pay tax to the country, instead of only paying in their home countries.
The race to bring in taxes for cryptocurrencies comes after the industry saw a boom of interest during the pandemic. Bitcoin hit an all time high earlier this year behind the fear, uncertainty and doubt (FUD) about its future in India.
Several ministers have mentioned the fact that cryptocurrencies do not fall under any regulatory purview. In February, Minister of State for Finance and Corporate Affairs, Anurag Thakur, had said that neither the Reserve Bank of India (RBI) nor the Securities and Exchange Board of India (SEBI), have regulatory oversight over these assets, since they aren’t issued by an identifiable user.
AdvertisementThis means that tomorrow if there is a scam or huge loss of wealth, these authorities may not be able to do much about it since the nature of cryptocurrencies is still undefined — akin to the conundrum South African financial authorities are currently facing after the largest crypto heist in history.
A solution for this could be to classify crypto as an asset class, which would put it under the purview of various authorities — an idea that other central banks and authorities have also been exploring.
For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.
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