While Pakistan desperately awaits a report scheduled for April 12 to finalize the legal status of cryptocurrencies and virtual assets, neighboring India has an entirely different fantasy.
For those who did not come across a relevant news report from India on 1 February, Indian Finance Minister Nirmala Sitharaman has announced a new tax regime for the country’s Rs. 400 billion cryptocurrency assets with a long-term aim to recognize virtual assets as a real store of value.
According to the draft regulation presented before the Bhāratīya Sansad — Parliament of India — the Reserve Bank of India (RBI) will introduce a central bank digital currency (CBDC) in the next financial year. Before this, rules for taxing the legal acquisition of cryptocurrencies at a flat 30 percent rate will be implemented.
Against the backdrop of India’s incredible shift from practically banning cryptocurrencies in November 2021 to devising a framework for a fully-blown adoption, what is going on in Pakistan?
Union Budget Decoded: What Has India Done?
In summary, India’s draft crypto regulation proposes the following:
- The income from the sale of virtual assets will be taxed at a flat rate of 30 percent.
- There will be no deduction for any expenses induced on virtual asset transactions, other than the cost of acquiring such an instrument.
- Loss incurred from virtual assets cannot be set off against any other income of the taxpayer.
- Loss arising from the digital asset cannot be carried forward to the next year.
- Any payment of proceeds to a taxpayer from the sale of digital assets will attract a one percent tax deduction on the source (TDS) on transactions above INR 50,000 in a year.
- Reserve Bank of India will launch a pilot central bank digital currency (CBDC) in the fiscal year 2022-23.
Which Assets Will India Consider as ‘Virtual Assets’?
A virtual digital asset, according to the proposed new clause, is defined as any information, code, number, or token (not being Indian currency or any foreign currency), generated through cryptographic means.
Explaining this, a member of the Internet and Mobile Association of India (IAMAI) said, “virtual assets include all cryptocurrencies that may be traded in India on multiple platforms, as well as all types of NFTs, both old and new, such as lands and other virtual experiences purchased on metaverse platforms”.
What Will India Gain from the Proposed Crypto Tax Regime?
The new tax structure will consider all crypto coins and tokens as assets of value instead of currencies/legal tender. It is expected that this will skyrocket India’s current crypto holdings and attract more people to invest in the space.
Consequently, the tax clarity is a welcoming move for Indian blockchain startups such as CoinDCX, InstaDapp, WazirX, and Nuo, that will now be able to freely innovate in the space through aggressive marketing campaigns and beta tests, further cementing India’s impression across the globe as more tech-savvy than many realize.
When Does India Plan on Implementing the New Crypto Tax?
Although it is a bit early, Indian media forecasts the newly proposed cryptocurrency tax will take effect from ‘Assessment Year’ 2023-24. This means that in FY2022-23, India’s entire cryptocurrency revenue will be taxed at a flat 30 percent rate.
What Pakistan Should Learn From India’s Proposed Crypto Policy?
- Taxation: Levy a flat tax rate, later pocketed by the central bank, and gradually strengthen forex reserves.
- Subsidy: Levy zero taxes on using cryptocurrencies in transactions, other than the cost of acquiring crypto assets.
- Legalize: The government should only allow transactions through authorized cryptocurrency exchanges that follow the prescribed Know-Your-Customer (KYC) process to prevent money laundering and monitor the transactions.
- Digital Rupee: SBP should launch its own digital currency which will allow it to cut costs, prevent frauds and move towards a digital economy.
- Fiat/Non-Fiat Parity: Clear the losses incurred in crypto only in crypto
- Selling Cryptocurrencies/Digital Assets to Others: Deduct an SBP-approved surcharge on the sale of cryptocurrencies/digital assets.
- Research and Decision Making: Intensify research and development of projects/startups based on blockchain technology for education and business purposes. This could bring billions of dollars in investment as it did in China, Kazakhstan, India and Turkey strengthening the forex reserves as well.
Here is What Pakistan Can Do
Several countries around the world are currently exploring the benefits of having their own CBDCs, with China being in the advanced stages of implementing its digital Yuan. Now, India has hopped on the bandwagon as well and intends to introduce its own CBDC next year.
Likewise, for Pakistan to realize its potential in the same space, it has to devise a rulebook to govern cryptocurrencies. Secondly, it must remove any hurdles that could stifle innovation in the digital assets’ game as India has so remarkably accomplished.
For the most part, if Pakistan decides to regulate cryptocurrencies on 12 April, it can begin with another baby step. For starters, a commission comprising officials of SBP, Finance, and Law Ministries could be formed to devise a basic tax system for crypto-related transactions. Initially, they do not have to recognize the financial asset as legal tender. They can allow citizens to trade on state-approved digital exchanges while taking out their “pound of flesh” (tax) from all transactions simultaneously.
What Pakistan has Actually Done in the Past Few Months?
Numerous events in the past four months offer unassailable evidence of the level of confusion and laziness that engulfs the authorities when it comes to cryptocurrencies.
In January 2022, SBP submitted a report to the Sindh High Court (SHC) which unequivocally stated that cryptocurrencies are illegal and cannot be traded. Later, the top Sindh court ordered the Law and Finance Ministries to conduct a joint study on cryptocurrencies and submit an inclusive report on April 12, justifying whether the said financial instrument should be banned altogether or allowed to be used as a genuine store of value based on an acceptable legal framework.
In December 2021, the Federal Investigation Agency (FIA) seized bank accounts of 1,064 individuals who had carried them out through numerous online exchanges, including Binance, Coinbase, and Coinmama. Moreover, the bank accounts of individuals who had been using Binance P2P to buy or sell cryptocurrencies were also frozen.
Subsequently, Director General FIA, Sanaullah Abbasi announced that the federal watchdog will approach the Pakistan Telecommunication Authority for blocking websites dealing in cryptocurrencies “to prevent fraud and possible money laundering.”
It was also disclosed SBP and the Securities and Exchange Commission of Pakistan (SECP) had adopted a ‘prohibited approach’ and issued warnings to citizens to discourage them with regard to dealing with digital currencies.
It is sad to see that Pakistani authorities move to ban every innovation instead of regulating it. For a country where citizens reportedly possess crypto assets roughly worth $20 billion, the above-mentioned instances do not paint a positive picture for the future of cryptocurrencies in Pakistan.
Because Indian government hire talented. Intellectual peoples to serve his country thats why there are growing so much