DEA Secretary says cryptocurrencies like bitcoin are dabba-trading; signals a new crypto policy in few months

Last Updated: Mon, Feb 05, 2018 17:26 hrs

The Chief Secretary of the department of economic affairs has equated cryptocurrencies with dabba trading. Law finds dabba trading as a parallel stock market, that results in unaccounted money, mostly via circular trading. SEBI, the Indian stock-market regulator as well as leading exchanges of the country such as BSE and NSE have put in efforts to weed out Dabba trading.

The stock markets including markets regulator SEBI as well as brokerage-houses connected with various exchanges view the practice of dabba trading as illegal as well as unethical.

Subhash Chandra Garg, the Secretary for the Department of Economic Affairs was sharing his thoughts in a post-budget interaction, conducted by CNBC TV18. The moderator asked for his opinions on Finance Minister Arun Jaitley's cryptocurrency linked comments in the 2018' Budget.

"The government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities or as part of the payment system,"

- FM Arun Jaitley on 1st February 2018 during the Budget Session.

Garg, the Economic Affairs Secretary sought to refer to cryptocurrencies as crypto-assets, since the government did not believe in referring to them as either coin or "currency". He also stated that the trades in crypto-assets were being conducted without any fundamental values assigned to them. He also explained that the Finance Minister wanted to express the government's focus on ensuring that it would eliminate the illegal uses coming from crypto-assets.

The government may also look at entrusting the job of regulating crypto-assets. At the moment, not all crypto-exchanges in the country complied with KYC norms, this in spite of the tax department surveying and even reaching out to individual users of popular bitcoin exchanges.

In the instance, crypto-currencies or assets like bitcoin, Ethereum, Ripple get viewed as a dabba trade, the government and regulators may be prompted to initiate measures including forced seizing of assets such as Computers, Servers, etc. Garg further added that there would be a need for legal frameworks and also an entity may be named to don the role of a regulator. There still appears confusion as to who could don this role, could it be the RBI, or SEBI?

There is no country that has a law in place to outrightly ban cryptocurrencies or exchanges from operating. There is a strong perception that China is anti-bitcoin, but the law in China states deems the entry of banks into cryptocurrency linked transactions as illegal. Mostly countries to that extent have come up with measures that calls crypto-currency as an invalid financial asset, rather than adopting a legal framework.

We might see something similar in India too. The RBI has already refused to grant them the status of a payment mechanism, the Finance Minister too has maintained the stance. This is the same stance that the Garg, the Secretary at the Department of Economic Affairs holds?

The suggestions of the committee on cryptocurrencies or assets, like the government likes to refer, will have a major bearing on popular exchanges operational in the country. There are also countries that have been lenient on trading and mining activities. For instance countries such as US, Croatia, Japan, Singapore, South Korea, Norway, Sweden and even Australia have washed their hands off by refusing to acknowledge crypto as legal fiat money. But miners and trader must pay taxes on their activites. For instance, in Israel, a country that taxes bitcoin trading, traders must pay 25% of taxes on capital gains. Tax systems adopted by other countries differs.

The onboarding of a regulator will not only ease queries such as the validity of bitcoin trading and mining, but it would also put to rest the question on taxation. The Indian tax agency for instance, does not clearly state whether crypto-mining or trading is taxable.

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