Taxing bitcoins: On par with stamps, art

India’s bitcoin exchanges reportedly plan to approach the Authority for Advance Rulings (AAR) to seek clarity over whether they would be liable to pay goods and services tax (GST).

The sale of listed securities on the stock exchange is exempt from GST. Should a similar exemption be granted to trading in bitcoins? The answer is not straightforward. More so as the government has made it clear that it does not recognise crypto currencies such as bitcoins as legal tender and that they have no regulatory permission or protection in the country, stopping short of announcing an outright ban. The absence of a regulatory regime makes the case to carve out a separate provision for bitcoins under the GST law weak.

Bitcoin’s legal status varies across nations. The EU has no specific law on it, but has held that value added tax will not be levied on conversion between traditional currency and bitcoin. The US Securities and Exchange Commission is said to have ruled that these coins may, in some cases, be securities and subject to regulation, while China has declared initial coin offerings illegal.

The rapid growth in crypto currency and Initial Coin Offerings notwithstanding, concerns loom over the substantially lower investor protection offered by bitcoins, compared to traditional securities, with more opportunities for fraud. Bitcoins are on par with rare stamps or works of art, investment in which is purely speculative, at the risk of the investor and outside the reach of securities trading regulations.

Also, the AAR for GST and the Appellate Authority for Advance Ruling have been set up under state Acts, and not the central Act, whose rulings apply only within the jurisdiction of the concerned state. The remedy is to bring the authority, a quasijudicial body, under the GST Council.


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