Why Centre should not heed RBI's advice to ban cryptocurrencies
Cryptos now hang in a wondrous state like the epical Trishanku swargam – neither bearing the stamp of official imprimatur nor condemned as contraband or illegal like narcotics; the government should let people invest in them, using their own judgment
Finance Minister Nirmala Sitharaman has gone public with the RBI counsel to ban cryptocurrencies. This is not the first time the RBI has recommended this course. It seems to be at loggerheads with the government on this issue. The government, meanwhile, wisely feels banning could well be counterproductive.
In Budget 2022-23, the Finance Minister, vide a new Section 115BBH, slapped a 30 per cent plus tax on profits from cryptocurrencies that made the tax greenhorns wonder if she was making them legit. She wasn’t. One of the fundamental canons of income tax is that the taint of illegality doesn’t insulate a transaction from tax.
A house of ill-repute is therefore as much liable to income tax as a reputed hospital. It is another matter that both don’t pay tax in our country, with the former adopting the cash-only principle and the latter hiding behind the age-old immunity from income-tax given to public charitable trusts. Corporate hospitals of course have to pay up. Be that as it may.
Cryptos now hang in a wondrous state like the epical Trishanku swargam – neither bearing the stamp of official imprimatur nor condemned as contraband or illegal like narcotics. There is a talk of the government possibly imposing a 28 per cent GST on cryptocurrencies now that its commodity status is no longer in the realm of doubt.
This is the way forward. Don’t be needlessly moralistic or sanctimonious except when a product or service has the effect of dehumanising the society, with prostitution and narcotics standing out as unquestionable examples. The world is veering to the view that gambling need not be frowned upon. France has given its thumbs up to man’s innate gambling instincts with some reasonable restrictions like they should not be located perilously close to factories lest workers blow away their salaries.
It is something like our own system – keep the liquor shops closed on pay days. Gujarat and Bihar alone are the two states in India practicing total prohibition though both know that it gives fillip to the more dangerous bootlegging industry and drinking on the sly, including by hotfooting to neighboring states to imbibe the forbidden potion. Bihar, in particular, must be ruing its decision as it can do with the considerable revenue from this commodity. Liquor and tobacco have been Finance Ministers’ favorite whipping boys.
Let people decide
So, let people invest in Bitcoin and its clones. Let them stew in their own juices. Have we banned day trading in the bourses, which is now the avocation of both the rich and the indolent? It is at the end of the day pure gambling given the fact that one cannot change his view to buy taken in the morning by disowning it in the afternoon in a manner of double take? The government should not sit in judgment over people’s investment and spending decisions beyond shaping fiscal policies to encourage or discourage certain activities.
No large democracy would invite chaos by making a cryptocurrency a competing legal tender. Elon Musk’s fascination with Bitcoin swept him and his company Tesla off their feet – why not accept Bitcoins in exchange for the electric cars sold by Tesla? The idea was nipped in the bud with authorities giving dark hints of disapproval.
All hell would have broken loose, for example, had Tesla accepted just two Bitcoins when it was riding high at $50,000 for a say, $100,000 car. Its downhill course testing $20,000 and less would have unleashed accounting and tax nightmare of Himalayan proportions.
An RBI-minted digital currency
The Indian government so far has followed a sensible policy. Its worldview that cryptos can join the romantic and besotted category of paintings, sculptures and artefacts cannot be faulted. Of course, they are also used in peer-to-peer transactions for settlement. It is, however, working on the Central Bank Digital Currency (CBDC), which can be likened to sanitised liquor hawked by TASMAC in Tamil Nadu under the aegis of the state government, as opposed to country liquor.
It is, however, not going to pander to the gambling instincts of its investors, as the RBI has made it clear that the official digital currency would be valued at the same rate i.e., one rupee is one rupee, period, whether it is CBDC or regular. Unlike Bitcoins, it won’t find its level in the rough and tumble of the market. That indeed could be a damp squib for speculators. But those who like to play it extremely safe might plump for it because unlike commercial banks, RBI would never renege on its promise to pay.
Such a bland product as it were would appeal to those who are worried about the safety of their bank deposits especially after the PMC Bank experience. The digital rupee would be borne on RBI’s balance sheet and protected through the invincible and impregnable blockchain technology.
But experts are worried about its downside – to the extent the Indian rupee is digitised as above and owned by the RBI, as it were, there will be lesser amounts at the disposal of banks to give loans out of. Furthermore, in return for safety, people will have to sacrifice interest.
CBDC is still a work in progress all over the world with its benefits in the realm of wooly notions of safety. Bitcoin tantalises investors with the possibility of appreciation, what with its mining restricted to 21 million coins and 90 per cent of this already mined, thus heightening its scarcity value. Gold, too, thrives on its scarcity value but its is tangible and glitters; Bitcoin doesn’t have these attributes, being a product of the virtual world with nobody to be kicked and no soul to be damned.
(The writer is a CA by qualification, and writes on business, consumer issues and fiscal laws)
(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not necessarily reflect the views of The Federal)