Government to impose 18% GST on bitcoin trading

[teosanru]

A piece of concrete news on the regulation of Bitcoin is finally in and it's not really great news. The central government has decided to put up 18% GST on bitcoin trading while deciding to classify it as an intangible asset and not "security". Remember there is no GST on shares/futures/options/bonds because Government has put these outside the definition of GST that is why you don't have to pay 18% GST when you purchase 1 Lakh worth of shares.

Source: https://www.businesstoday.in/current/economy-politics/centre-may-impose-18-percent-gst-on-bitcoin-trading/story/426315.html

The Central Economic Intelligence Bureau (CEIB), an arm of the union finance ministry has put forward a proposal to impose 18 per cent GST on bitcoin transactions. The CEIB told the Central Board of Indirect Taxes & Customs (CBIC) that government could potentially gain Rs 7,200 crore annually on bitcoin trading.

Now, apart from discussing how concrete this news is, I would focus more on the consequences:

• First of all there is no clarity as to what would be the taxable value on which GST would be levied? Will it be the whole amount of Bitcoin you purchase on an exchange or will it be only on brokerage or something specific like that
• Second is who will be liable to collect and pay this GST? Its obvious burden would be at the end on the person buying BTC but what about a seller? This way I would more or less become a bitcoin businessman. When I sell it to someone I charge 18% GST and take ITC of the amount I purchased. This would be a relief as this would mean you will have to give 18% cut out of profits and not out of the total sales value. But this would mean each one of us will have to take a GST Number and file monthly GST returns making the process pretty cumbersome.
• Another option could be that exchanges are given this authority to collect GST at the time of each sale purchase but that too doesn't make a lot of sense.
• It would more or less be a big shocker for the whole crypto industry
• But one good news that comes with this news is that at least bitcoin isn't getting banned. Because the government wouldn't mind a 7200 crore of additional Income.
  

[webtricks]

Nicely explained! Even I was shocked when I read the news earlier today. It really doesn't make sense to charge indirect tax on trading.

First of all there is no clarity as to what would be the taxable value on which GST would be levied? Will it be the whole amount of Bitcoin you purchase on an exchange or will it be only on brokerage or something specific like that

As per the report, they are suggesting to levy GST on margin made in trading. But at the same time, they are saying that GST will be levied on all transactions. So it doesn't make sense. Are they saying that only those transactions are subject to GST on which trader has made profits? How will they determine buy price if I bought bitcoins 'n' number of times before selling? I think they are misunderstanding how bitcoin or trading works.

If they wanna charge GST, it would be much better that every trader files periodical return by depositing GST on net profit made during the period. And GST rate should be lesser (5% maximum).

• Second is who will be liable to collect and pay this GST? Its obvious burden would be at the end on the person buying BTC but what about a seller? This way I would more or less become a bitcoin businessman. When I sell it to someone I charge 18% GST and take ITC of the amount I purchased. This would be a relief as this would mean you will have to give 18% cut out of profits and not out of the total sales value. But this would mean each one of us will have to take a GST Number and file monthly GST returns making the process pretty cumbersome.

I don't think ITC can be applied here. Since, the proposal is about charging the GST on profits, the buyer won't know how much GST is to be charged on the trade. So, the logical step would be that the seller bears the burden of GST by paying off the percentage of GST from his earned margin.  

• Another option could be that exchanges are given this authority to collect GST at the time of each sale purchase but that too doesn't make a lot of sense.

Third-party collecting and depositing GST on the taxable supply made by one party to another, that would quite an exception to add in GST Law. Good luck future CA students.

• But one good news that comes with this news is that at least bitcoin isn't getting banned. Because the government wouldn't mind a 7200 crore of additional Income.

I am still wondering how Bureau came up with that figure. As per Times of India article, Rs. 40K crore is the estimated annual bitcoin transactions value. It doesn't make sense to levy GST on transactions. Or is this total trade volume, then again it doesn't make sense to levy GST on total volume.

[teosanru]

Nicely explained! Even I was shocked when I read the news earlier today. It really doesn't make sense to charge indirect tax on trading.

First of all there is no clarity as to what would be the taxable value on which GST would be levied? Will it be the whole amount of Bitcoin you purchase on an exchange or will it be only on brokerage or something specific like that

As per the report, they are suggesting to levy GST on margin made in trading. But at the same time, they are saying that GST will be levied on all transactions. So it doesn't make sense. Are they saying that only those transactions are subject to GST on which trader has made profits? How will they determine buy price if I bought bitcoins 'n' number of times before selling? I think they are misunderstanding how bitcoin works.



If they wanna charge GST, it would be much better that every trader files periodical return by depositing GST on net profit made during the period. And GST rate should be lesser (5% maximum).

I don't think it's going be this fancy they are just going to classify it as intangible asset and just like you have a business of purchasing and selling softwares or other intangibles you will have to collect and pay GST to the government @18%. Talking about the rate the Bitcoin industry isn't that large at the moment that it could lobby or leverage itself with the government and neither does it directly affects the lives of the common man. So I am thankful they are keeping it at 18% and not 28%. They don't care about the market they anyway wanted to stop it.

• Second is who will be liable to collect and pay this GST? Its obvious burden would be at the end on the person buying BTC but what about a seller? This way I would more or less become a bitcoin businessman. When I sell it to someone I charge 18% GST and take ITC of the amount I purchased. This would be a relief as this would mean you will have to give 18% cut out of profits and not out of the total sales value. But this would mean each one of us will have to take a GST Number and file monthly GST returns making the process pretty cumbersome.

I don't think ITC can be applied here. Since, the proposal is about charging the GST on profits, the buyer won't know how much GST is to be charged on the trade. So, the logical step would be that the seller bears the burden of GST by paying off the percentage of GST from his earned margin.  

It would make the whole process more cumbersome. Indirect taxes have lesser collection costs to the government as compared to Income Tax and that is due to the basic reason that turnovers aren't that easy to hide as payments made by the buyer to seller can be direclty reconciled and the burden passes so even the Seller isn't much worried. Making GST on net margin would be like giving a big deal of subjectivity to every taxpayer. An already shady industry in eyes of the government won't get this much freedom in paying GST. Moreover reconciling profits is fine when you trade merely on one exchange but If I brought on Binance and sold on WazirX it makes my declaration absolutely arbitrary and almost impossible to reconcile unless by a proper assessment by the officer. This is the sole reason why ITC concept was introduced and not simply pay tax on the value you add to the product.

• Another option could be that exchanges are given this authority to collect GST at the time of each sale purchase but that too doesn't make a lot of sense.

Third-party collecting and depositing GST on the taxable supply made by one party to another, that would quite an exception to add in GST Law. Good luck future CA students.

Haha no, most probably the system here would be like an OTC Exchange. A seller sells to the exchange and a buyer buys from the exchange. Something we used to see on Zebpay back in the initial years. So the burden ends on cunsumer but liability and collection would be with exchange/wallet.

• But one good news that comes with this news is that at least bitcoin isn't getting banned. Because the government wouldn't mind a 7200 crore of additional Income.
  

I am still wondering how Bureau came up with that figure. As per Times of India article, Rs. 40K crore is the estimated annual bitcoin transactions value. It doesn't make sense to levy GST on transactions. Or is this total trade volume, then again it doesn't make sense to levy GST on total volume. [/list]

Haha yeah even I am confused how they brought up this amount. I am surprised to see figures this high but a GST on total volume would really hurt a lot. Bitcoin would completely lose it's essence as a security.

[pawanjain]

• First of all there is no clarity as to what would be the taxable value on which GST would be levied? Will it be the whole amount of Bitcoin you purchase on an exchange or will it be only on brokerage or something specific like that

It doesn't make any sense to charge 18% GST on the whole amount bitcoin purchase. Imagine a person buying 10k INR worth bitcoin and selling it at 12k INR which means 20% profit but if he would pay 18% to the Government then it would make any sense to earn those profits. Another scenario is what if he buys and sells in a loss. Adding 18% to it would create a huge impact to his loss.
So taxing the whole bitcoin amount is out of the scope here.

• Second is who will be liable to collect and pay this GST? Its obvious burden would be at the end on the person buying BTC but what about a seller? This way I would more or less become a bitcoin businessman. When I sell it to someone I charge 18% GST and take ITC of the amount I purchased. This would be a relief as this would mean you will have to give 18% cut out of profits and not out of the total sales value. But this would mean each one of us will have to take a GST Number and file monthly GST returns making the process pretty cumbersome.
• Another option could be that exchanges are given this authority to collect GST at the time of each sale purchase but that too doesn't make a lot of sense.

What I think is that the Government is planning to tax the profits made on every/sell. In this case the buyer and seller wouldn't have separate taxes levied on every purchase but rather the tax would be levied on the cumulative profits. Further more, I think that the tax would be levied when we withdraw the profits to bank. This way the exchanges wouldn't have to collect the tax. It would be the user who would have to apy the taxes.
It could be the other way around but I guess it would be better this way.

• But one good news that comes with this news is that at least bitcoin isn't getting banned. Because the government wouldn't mind a 7200 crore of additional Income.
  

That is the one and only good thing that we can portray out of this news.

[teosanru]

• First of all there is no clarity as to what would be the taxable value on which GST would be levied? Will it be the whole amount of Bitcoin you purchase on an exchange or will it be only on brokerage or something specific like that

It doesn't make any sense to charge 18% GST on the whole amount bitcoin purchase. Imagine a person buying 10k INR worth bitcoin and selling it at 12k INR which means 20% profit but if he would pay 18% to the Government then it would make any sense to earn those profits. Another scenario is what if he buys and sells in a loss. Adding 18% to it would create a huge impact to his loss.
So taxing the whole bitcoin amount is out of the scope here.

Actually no it won't work this way. It would be like you are a metals trader trading in metals. Now if you buy 10k INR worth Metal you pay a GST of 1.8K @18% to the person you are buying it from taking your total cost to 11.8K this will be called your ITC. but when you sell it for 12K you will collect 18% GST from the purchaser which means 2.16K INR. But now you will have to deposit 2.16k - 1.8K(which you paid on purchase) = 0.36K to the government. Therefore net you are paying an 18% tax on the profit you made but the mechanism works that you collect tax and deposit it to government after claiming ITC

• Second is who will be liable to collect and pay this GST? Its obvious burden would be at the end on the person buying BTC but what about a seller? This way I would more or less become a bitcoin businessman. When I sell it to someone I charge 18% GST and take ITC of the amount I purchased. This would be a relief as this would mean you will have to give 18% cut out of profits and not out of the total sales value. But this would mean each one of us will have to take a GST Number and file monthly GST returns making the process pretty cumbersome.
• Another option could be that exchanges are given this authority to collect GST at the time of each sale purchase but that too doesn't make a lot of sense.

What I think is that the Government is planning to tax the profits made on every/sell. In this case the buyer and seller wouldn't have separate taxes levied on every purchase but rather the tax would be levied on the cumulative profits. Further more, I think that the tax would be levied when we withdraw the profits to bank. This way the exchanges wouldn't have to collect the tax. It would be the user who would have to apy the taxes.
It could be the other way around but I guess it would be better this way.

But that cannot be said as GST. GST is charged on "Supply of goods and services" withdrawing funds to your bank account isn't a supply so it would become pretty easy to challenge such a thing in courts. They won't make this easy of a law.

[pawanjain]

~snip

So you mean Government will tax bitcoin just like how other goods are taxed in the current market. Well then it would be a long debate before this one actually becomes a law.
So I guess we have a lot of time before this law is implemented in the market. 

[teosanru]

~snip

So you mean Government will tax bitcoin just like how other goods are taxed in the current market. Well then it would be a long debate before this one actually becomes a law.
So I guess we have a lot of time before this law is implemented in the market. 

Haha I would have said this if it was any other government. But this government has a bit different approach to thing which no one likes. This government just creates a law and then thinks about it's implementation. GST law in itself was framed in haphazard manner and it's proper implementation is still a far fetched story. Same is the case with any other law introduced by this government. So I think in this case too we will see a similar thing. They will just introduce the law and let the market think about it's implementation.

[webtricks]

The whole purpose of ITC is to avoid the double counting problem. The process makes sure that the tax is only levied on the value-addition at each step of production. But it would be insanity to apply the same system on economic activities like trading. Unlike the normal production of goods and services, trading doesn't have fixed production cycle. The supply goes on and on from one trader to another continuously. No new value will be added in most of the transactions. If the average price of bitcoin remains constant throughout the year, the government will end up with nothing but Avg. Price of Bitcoin * No. of bitcoins on Indian Exchanges * 18% less ITC Liability remaining with buyers which I think would be much-much less than Rs. 7200cr.

And what if I inject new supply to the Exchange? Unlike stocks, cryptocurrencies can be easily traded P2P. If I just buy bitcoin off-exchange, deposit it to exchange, sell it on exchange, buyer pays the GST and claims ITC, I am out without any GST implications and government ends with zero revenue (lol). It would be much simpler to ask trader to simply deposit periodical GST on the profits made as per profit report provided by the Exchange rather than having thousands (or even millions) of buy/sell transactions to be reported on portal regularly (that would be hell of the reporting), when both systems would result in roughly same GST collection for the government.

On the side note, imagine if government failed to apply GST on trading of stocks and shares (which are very well traded on official platforms), how in the world it thought that it would be nice idea to collect GST on cryptocurrency trading, lol.

[teosanru]

The whole purpose of ITC is to avoid the double counting problem. The process makes sure that the tax is only levied on the value-addition at each step of production. But it would be insanity to apply the same system on economic activities like trading. Unlike the normal production of goods and services, trading doesn't have fixed production cycle. The supply goes on and on from one trader to another continuously. No new value will be added in most of the transactions. If the average price of bitcoin remains constant throughout the year, the government will end up with nothing but Avg. Price of Bitcoin * No. of bitcoins on Indian Exchanges * 18% less ITC Liability remaining with buyers which I think would be much-much less than Rs. 7200cr.

And what if I inject new supply to the Exchange? Unlike stocks, cryptocurrencies can be easily traded P2P. If I just buy bitcoin off-exchange, deposit it to exchange, sell it on exchange, buyer pays the GST and claims ITC, I am out without any GST implications and government ends with zero revenue (lol). It would be much simpler to ask trader to simply deposit periodical GST on the profits made as per profit report provided by the Exchange rather than having thousands (or even millions) of buy/sell transactions to be reported on portal regularly (that would be hell of the reporting), when both systems would result in roughly same GST collection for the government.

On the side note, imagine if government failed to apply GST on trading of stocks and shares (which are very well traded on official platforms), how in the world it thought that it would be nice idea to collect GST on cryptocurrency trading, lol.

But if we are talking this way technically there can be no Indirect Tax on something you cannot consume. Because the burden of tax goes on the end customer and here there is no end customer? Hmm. Interesting. Things are much more complicated than they look. But I don't think there would be a separate collection mechanism, especially for cryptocurrencies. It would be like making new types of indirect taxes by the name of Goods and Service tax. Wasn't this the very purpose of GST to remove all other Indirect Taxes? I think imposing any kind of tax would be like killing the market as a whole. It's a foolish plan altogether designed to crush this speculative market but most of the people will just shift their trading to foreign exchanges outside the jurisdiction of India you can't levy GST on that obviously.