Despite the reversal by the Supreme Court on the ban placed against crypto exchanges by the Reserve Bank India (RBI), local Bitcoin exchanges are still facing difficulties in receiving services from financial institutions. Market participants are now calling on the RBI to offer up much-needed clarity on their regulatory status and tax obligations.
Banks Still Shun Indian Bitcoin Exchanges
According to a report by the Economic Times on Monday (May 4, 2020), several Bitcoin exchanges in India collectively wrote a letter to the RBI, asking for clarification regarding their status as well as tax categorization. The letter was penned after Bitcoin exchanges complained that financial lenders refused to offer them banking services.
A statement by Sidharth Sogani, the CEO of CREBACO Global, a crypto and blockchain research firm, reads:
“After the supreme court judgment, the RBI was supposed to issue a new circular directing the banks to start banking relationships again with cryptocurrency exchanges and businesses. When the Crypto exchanges approached banks to start operations the banks simply denied as they had not received any notification from the RBI till date.”
The RBI mandated commercial banks in India to cease offering financial services to virtual currency businesses back in April 2018. However, the ban was not well received by the Indian digital currency community, as most saw the central bank’s ban as arbitrary.
As reported by Blockonomi back in March 2020, the Supreme court ruled in favor of the crypto community by reversing the RBI ban. Shortly after the landmark judgment, the RBI was reportedly planning to petition the ruling of the apex court, on the grounds that resumption of virtual currency trading was risky for mainstream banking institutions.
Sidharth further said that financial institutions in the country are trying to be careful and claiming they are anti-Bitcoin, as they cannot refuse banking services to Bitcoin exchanges following the apex court’s repeal of the RBI ban. However, the lack of banking support is hindering the potentials of the crypto industry in the country.
Indian Crypto Bourses Want Clear-cut Tax Laws
In addition to seeking status clarity from the RBI, the Bitcoin exchanges also need information on tax categorization. The virtual currency businesses need the central bank to define if they fall under goods, commodities, services, or currency category, to determine how they will be taxed under India’s Goods and Services Tax (GST).
Different tax authorities in the past have investigated crypto exchanges along with bitcoin and other virtual currencies to determine if digital currencies fall under the purview of the GST framework.
Speaking on the matter, Praveenkumar Vijayakumar, head of the crypto platform Belfrics Global, said:
“If the digital assets are not exempted from GST, the digital currency exchanges in India are going to have a standoff with the tax authority. In early 2019, the tax department had reached out to several cryptocurrency platforms in this regard. In the wake of the recent Supreme Court ruling, we have also approached the RBI for clarity on this, as if we pay GST on the whole transaction, then most platforms would not be able to survive.”
Crypto Taxation Rundown Outside India
Outside India, crypto tax laws are also taking shape with regulators keen on maintaining strict compliance. In the U.S., the Internal Revenue Service (IRS) invited stakeholders in the crypto industry to a summit in March 2020 for discussions regarding crypto tax laws.
The IRS earlier distributed over 10,000 warning letters to bitcoin investors in a bid to curb crypto tax evasion. However, the Government Accountability Office (GAO) recently stated that the virtual currency tax law was not clear enough and needs more clarification, although the IRS does not agree.
Back in April 2020, Spanish tax authorities were gearing up to send more letters to bitcoin holders. In November 2018, the authorities clamped down on individuals who owned virtual currencies, after the Spanish Treasury got hold of the names of over 15,000 taxpayers with crypto holdings.
However, in New Zealand, tax authorities are considering exempting bitcoin and other digital currencies from the country’s GST structure, to encourage the development of the crypto sector.