International Tax Panorama

As per the Business Standard report, the Indian government is planning to block the internet protocol (IP) addresses of major cryptocurrency exchanges in India. The move will be implemented after the investors have been given the opportunity to square their crypto-investments within a three to six-month window.

The move might not come as a surprise as the government was already considering the past month, bringing legislation to ban cryptocurrency mining, trading and investments in India. Simultaneously, the legislation will give powers to the Reserve Bank of India (RBI) to finally build and launch a Central Bank-backed Digital Currency or Digital Rupee.

However, the government will give investors a window to square their holdings and that it is planned a “calibrated” approach.

As an alternative, the users can access any website through Virtual Private Networks if the government decides to block the IP addresses of crypto-currency exchange platforms. 

Why is the government concerned about crypto-currencies? 

The government’s concerns with crypto-currencies are primarily due to the following reasons;

Firstly, the nature of crypto-currencies which gives the government very little control on speculative activity in these assets. 

Secondly, these crypto-currencies are always suspected as a means to financial frauds, Ponzi schemes, terrorism financing and money laundering.

Is the ban the right solution? 

Crypto-entrepreneurs are already protesting that a ban on crypto-currencies would not fix the government’s concerns. A ban would encourage more black or illicit market activity, they said. The best solution that is being suggested is to regulate the cryptocurrency exchanges, introduce crypto investments as a category within the Income Tax assessment system as well as within the Goods and Services Tax regime and encourage the crypto and blockchain industry together.

Thus, a regulated market is being encouraged to ensure that crypto exchanges comply with KYC and AML guidelines and mitigate any illicit activities through digital currencies. Thus, the government must take a middle ground by incorporating a measured mix of international best practices, existing as well as new domestic regulatory regimes, which will help in regulating and promoting the use of cryptocurrency in the country.