The government may expand the indirect tax net over cryptocurrencies to cover the entire gamut of activities, including their usage for exchanging goods and services, at the highest slab of 28% as many parliamentarians have demanded to treat them at par with lotteries and gambling, two people aware of the development said.
Although the finance ministry has already imposed a 30% income tax on earnings from virtual digital asset transactions from April 1, there are still several aspects pertaining to goods and service tax on cryptocurrencies, such as its mining, sale and purchase, and their exchange value when used for buying or bartering goods and services. This matter is under consideration as all such activities may attract GST, they said, requesting anonymity.
“Tax proposals will be analysed by the law committee, which will recommend its views to the GST Council for its consideration,” one of them said.
While the law committee on GST comprises of 23 bureaucrats representing indirect tax matters from the Centre and states, the GST Council is the apex decision-making body. The Council is chaired by the Union finance minister and finance ministers of states are its members.
One aspect of cryptocurrency is already covered under the indirect tax regime — services provided by crypto exchanges for their sale and purchase attract 18% GST, the second person said. “Several MPs demanded to raise GST on cryptocurrencies to 28% like gambling and lotteries. As Parliament is an apex body, their demands will also be examined by the law committee,” he said.
The GST Secretariat, the Central Board of Indirect Taxes and Customs (CBIC), the Union finance ministry, the group of ministers (GoM) on rate rationalisation, and the GoM on casinos, gambling and online gaming did not respond to email queries on this matter.
During the debate pertaining to the Finance and the Appropriation Bills on March 25 in Lok Sabha and March 28 and 29 in Rajya Sabha, several members of Parliament raised the issue of cryptocurrency and its legal status. They proposed higher tax rates on them. They also suggested that cryptocurrencies should be treated like lotteries and gambling, and GST on cryptocurrencies should be levied as per the higher slab of 28% instead of 18%.
It should be levied on the total transaction value rather than only on the part of services provided by crypto exchanges, parliamentarians have suggested, the second person said. Currently, 28% GST is levied on gambling and services provided by race clubs.
The GST Council will have to study both the technical and legal aspects pertaining to cryptocurrencies before taking a view on tax rates, experts said.
“Taxation of cryptocurrency is quite nuanced,” said Mahesh Jaising, partner and leader, indirect tax at consultancy firm Deloitte India. “While framing a law for bringing the cryptocurrency transaction within the GST ambit, lawmakers seem to considering multiple aspects, such as whether cryptocurrency qualifies as a service or a goods, how to determine the location of parties for each leg of the transaction, what is the global indirect tax principles of taxation on these transactions, etc.”
“While the rate of tax is important, the larger issue of the what needs to be taxed, and on which value, is more fundamental,” he said. “Specifically, there would be challenges in determining the method and value on which GST that would need to be paid on subsequent sale transactions, since GST would have been paid on the cost of acquisition. It is hoped that industry is consulted when the draft construct is put together by GST policymakers.”
The GST law does not clearly classify cryptocurrency either as goods or services to determine the levy, according to Saket Patawari, executive director, indirect tax at Nexdigm, a consultancy firm .
“Currently tax is levied only on the part of the services provided by crypto exchanges,” he said. “Subjecting the whole transaction to tax at a higher slab of 28% could give the markets a free fall.”
A clarification is required whether the government treats cryptocurrencies as goods or service for taxation purposes, he said.
“Once the virtual digital asset is classified, further clarity would be warranted on levy, place of supply, time of supply, and the overall treatment of cryptocurrency under GST,” Patawari added.