Govt weighs NFT nod to legalise digital assets
CLASSIFICATION OF VDAS CAME INTO BEING WHEN SITHARAMAN ANNOUNCED THE TAX IN BUDGET SPEECH ON FEB 1
NEW DELHI: The government is considering legally allowing some blockchain-based uses such as NFTS as it could legalise some virtual digital assets (VDAS) , while possibly outlawing the use of the more popular blockchain tech that is cryptocurrencies, people aware of the matter said, citing a risk to financial stability from the latter that can be used as an illegitimate payment system.
The plans are part of what is eventually likely to be codified in a new law once detailed discussions with various stakeholders culminate, these people added. At present, cryptocurrencies such as Bitcoin and Ether and digital assets like non-fungible tokens (NFTS) exist in a legal grey area, although gains on selling of these are taxed at a flat 30% rate. “A final view is still awaited as the consultation process is not yet over, but there is near consensus that all VDAS cannot be treated as cryptocurrencies. VDAS may also include NFTS. Hence, the definition of VDA is wide, and it is not limited to those assets generated through cryptographic means alone,” one person said.
The classification of VDAS came into being when Union finance minister Nirmala Sitharaman announced the tax in her Budget speech on February 1. To be sure, the only broad umbrella that can be applied to cryptocurrencies as well as digital assets is the blockchain technology on which these are based.
A blockchain is a distributed ledger of records that enables the creation of digital money, art collections and virtual land owning. Almost all of these are considered crucial constituents for the vision of the so-called Metaverse, a virtual reality construct accessed via more immersive hardware like special goggles.
India and several other nations have resisted the concept of digital money and cryptocurrencies because they lack a sovereign fiat, are unregulated and thought to be inherently volatile. “RBI is open for the use of blockchain technology for NFTS etc, but it is not in favour of allowing private cryptocurrencies to disrupt the regulated financial system, which has been well articulated by RBI deputy governor T Rabi Sankar’s recent address,” the person quoted above added. There are also fears that cryptocurrencies can be used in the drug trade or to finance terror.
In his keynote address at the Indian Banks Association on February 14, Sankar argued at length why cryptocurrencies should be banned. “Cryptocurrencies have specifically been developed to bypass the regulated financial system. These should be reason enough to treat them with caution. We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse. These should be reason enough to keep them away from the formal financial system,” he said.