Crypto currency trade: Tax imposed on corrupt currency in India, can Pakistan do the same?
Crypto currency transactions are very popular in both India and Pakistan. In Pakistan, on the one hand, there is talk of a complete ban on cryptocurrency, while on the other hand, India announced last week that transactions of digital assets such as cryptocurrency will be taxed at 30%. The announcement is being seen as a first step towards legalizing the corrupt currency in India.
So can Pakistan learn any lessons from this move of India and will it be in Pakistan's interest to take steps like India? Before knowing the answer to this question, let's first look at what recent steps India has taken in this regard and what is the current situation and policy regarding digital currency in Pakistan?
Tax on cryptocurrency in India
Presenting the federal government's budget last week, Finance Minister Nirmala Sitharaman said, "Any virtual digital asset transaction will be taxed at 30 per cent." One percent TDS will also have to be paid for the transfer of virtual digital assets. The person receiving the gift of virtual currency will also have to pay taxes.
He also said that India would launch its digital currency this year.
Many people are asking the question that the tax is levied on something legal, so has the corrupt currency got legal status in India?
Experts say the announcement of a tax on cryptocurrency does not mean that the government has legalized it, but it is a first step in that direction.
It should be noted that cryptocurrency is not illegal in India but its legal status is being debated in government institutions.
But has the government legalized it by taxing it? The finance minister and the finance secretary say that is not the case.
Ajit Kharana, former CEO of Zeb Pay, a cryptocurrency exchange, says: Even if you are paying the bill, it does not mean that your illegal construction has become legal.
But why are people saying that the path of cryptocurrency in India has been cleared after the announcement of tax? "The reason is that people are predicting that this is the first step towards legalizing corruption," he said.
What will be the procedure for taxing crypto currency?
Imagine you have no digital assets. How do you get your first cryptocurrency? According to Kharana, most people 'sign up' for a corrupt exchange. "They transfer money from their bank to the crypto exchange and buy the cryptocurrency."
"Then they can do it anonymously, but the first step is usually the exchange of cryptocurrency which is not anonymous. As a result, at least at the time of the initial purchase, we know you made the purchase. "
In India, the payment of income tax is generally the responsibility of the citizens as India has a system of self-assessment.
You are responsible for estimating your own taxes, regardless of whether anyone has seen it or not. In some cases of cryptocurrency there is anonymity but cryptocurrency leaves its 'trace' which is recorded and is publicly available. "If not today, then tomorrow, it can always be traced," says Kharana.
Simply put, you have to pay taxes somehow. Some people will think that no one will know that 'I have made a profit', but since it is a series of links, such a profit can be traced.
In addition, the government has announced a 1% TDS on each transaction, which according to Kharana is "a master stroke." It will fill the gaps in the system and create a system of accountability.
But the problem is that the government has imposed a 30% tax on each transfer and not on every sale, which will make it easier to trace. "The reality is that most transfers are sales, but after this announcement, if I had to move from one wallet to another, I probably wouldn't do it now," says Kharana.
TDS will not affect those who are making long term investments as it will be refunded in their income tax by the end of the year.
But the problem is that if someone is buying and selling 'fast trade', for example, 10 times a day, then his 'principal' may be lost. That is why investors are opposed to it, especially those who trade 'fast'.
What is the legal status of cryptocurrency in Pakistan?
The popularity of crypto wallet apps like 'Binance' in Pakistan suggests that thousands of people are involved in the crypto business. But the position of the Pakistani authorities regarding the Crypto currency has been somewhat ambiguous.
In 2018, the SBP issued a statement asserting that cryptocurrency has no legal status. The statement urged banks not to allow their customers to transact in corrupt currency.
Responding to an attention-grabbing notice in the National Assembly in October 2020, Minister of State Ali Muhammad Khan said that corrupt currency is a new technology, SBP is working on it, and we cannot close the door for new technology. ۔ Ali Mohammad Khan had said that the country has to move towards corrupt currency, SBP is cautious on the issue of new currency and wished that progress be made in this matter carefully.
Earlier, there were reports in the media that Khyber Pakhtunkhwa had set up a cryptocurrency mining and formed a committee in this regard.
Last year, SBP Governor Raza Baqir told CNN that his agency was investigating the cryptocurrency.
However, when the SBP's position was challenged in court, the bank had told the Sindh High Court that the cryptocurrency was not "illegal".
The Sindh High Court last year ordered the Pakistani government to legislate on corrupt currency within three months.
At the same time, the Sindh High Court issued orders to set up a committee which recently suggested that corrupt currency should be completely banned in the country.
Meanwhile, the International Financial Institution (FIA) has also recently announced that it has received complaints from various fake apps in the country regarding cryptocurrency. The FIA estimates that 100 million has been swindled out of the country through these fake apps. The FIA has also asked the Pakistan Telecommunications Authority to block access to 1,600 corrupt platforms.
Therefore, it is not yet clear whether the Pakistani government wants to legalize the corrupt currency and is conducting research and legislation in this regard or whether the Pakistani authorities have decided to ban it.
Can Pakistan also tax Crypto currency?
The report submitted by the authorities in Pakistan to the Sindh High Court regarding the corrupt currency said that it should be banned due to the risk of fraud.
However, Syed Aoun of Crypto Brothers, a company that teaches traders how to trade cryptocurrencies, says Pakistan can take a similar step to India.
He said that imposition of tax would bring two benefits to Pakistan. One is that those who object that our government is not legalizing it will have their objections removed. Second, with the advent of regulatory framework, the fraud that is taking place will end. "
Syed Aoun says that if it is taxed, the government of Pakistan can give a document to all the big exchanges that if any Pakistani citizen opens an account with you, we will be provided with such and such information. "This document can then be filled out by consumers and exchanged with the government."
"Then if more money is transferred to a citizen's account than the assets declared, the exchange can tell the government that your citizen is either evading taxes or committing fraud."
But the government of Pakistan may have another concern in this regard that it will start sending money out of Pakistan rapidly and the government will not be able to stop this 'capital outflow'.
Syed Aoun says that SBP should introduce its digital currency as India intends to do.
"Right now your concern is that you have to buy dollars for the corrupt and the dollars go out of the country," he said. If you have a stable digital coin of your own, the value of which is pegged to Pakistani Rupees, then all you have to do is buy the coin and then buy another currency from it. ۔ (And) money can be obtained by converting Pakistani rupee into coins.
He acknowledged that this would not stop the flow of capital outflows, but would reduce it significantly. He said that this will reduce the demand for dollars, meaning that your currency will not be under pressure due to the corrupt currency and your rupee will remain relatively stable.
Syed Aoun said that another lesson that the Pakistani government should learn from India is that by imposing taxes you are only legitimizing the trade of corrupt currency, not its use as currency.
That is, you are allowing its transactions as a digital asset, not allowing anyone to make purchases with its help. India has also not allowed it to be used as currency.
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