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DOI: 10.7256/2454-0706.2023.1.39703
EDN: CATYXP
Received:
26-01-2023
Published:
02-02-2023
Abstract:
The article discusses the features of the tax and legal regulation of cryptocurrencies in the Republic of India and the Russian Federation. A study of legal regulation and a study of the positions of legal scholars of the Republic of India, in terms of regulating the turnover of cryptocurrencies, as well as the experience of regulatory regulation of the turnover of cryptocurrencies in the Russian Federation. As a result of the study, the author identified a gap in the legal regulation of taxation of cryptocurrencies in the Russian Federation, in comparison with the legal regulation of the Republic of India. Public relations arising in connection with the turnover of cryptocurrencies are not regulated in any country of the world at the moment, including in terms of taxation of transactions using cryptocurrencies. In this connection, it is necessary to take into account the foreign experience of legal regulation of taxation of cryptocurrency turnover, including the Republic of India. The problem lies in the fact that amendments to the Tax Code of the Russian Federation have not been adopted at the moment, which would regulate the taxation of cryptocurrency turnover in the Russian Federation. To investigate the experience of legal regulation of taxation of cryptocurrencies of the Republic of India and to identify aspects that could be applied to form the legal regulation of taxation of turnover of cryptocurrencies in the Russian Federation. Previously, comparative legal research in this area has not been conducted.
Keywords:
taxation, cryptocurrency, blockchain, token, digital financial asset, digital currency, utilitarian digital rights, mining, staking, Republic of India
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The Russian Federation has introduced Federal Law No. 324-FZ dated 14.07.2022 "On Amendments to Part Two of the Tax Code of the Russian Federation" [1] on Taxation of digital Financial Assets and digital Rights, including both a digital financial asset and a utilitarian digital right (hereinafter referred to as the "CFA"). However, the CFA enshrines the legal concept of a token, a derivative instrument based on distributed ledger technology, but not a foreign currency. Consequently, there is no legal regulation of taxation in the Russian Federation Based on the provisions of the Tax Code of the Russian Federation, persons involved in the turnover of cryptocurrencies have an obligation to pay tax when conducting transactions with cryptocurrency in any case. A feature of the legal regulation of cryptocurrency turnover in the Russian Federation is the creation of a separate law aimed at comprehensive regulation of cryptocurrency turnover. So, from January 1, 2021 Federal Law No. 259-FZ dated 31.07.2020 "On Digital Financial Assets, Digital Currency and Amendments to Certain Legislative Acts of the Russian Federation" [2] (hereinafter referred to as the "CFA Law") came into force, the introduction of this law confirmed the legal status of the token and as a result became the basis for calculating and paying taxes for transactions made with tokens, in terms of taxation of income received from the turnover of cryptocurrencies, the issue remains debatable, since the concept of "digital currency" is not identical to the scientific and technical concept of cryptocurrency. The government of India in early 2018 stated that cryptocurrencies such as Bitcoin are not legal means of payment in India [3]. Although the government has not adopted a regulatory framework for cryptocurrencies [4], the bill, which is called the "Law on the Prohibition of Cryptocurrencies and Regulation of the Official Digital Currency of 2019" [5], was developed by an interdepartmental government committee and is currently awaiting approval by authorized agencies and regulatory authorities before it is submitted to parliament [6]. The bill aims to "prohibit the mining, storage, sale, trading, issuance, disposal or use of cryptocurrencies in the country" [7]. The Central Bank of India (The Reserve Bank of India) has issued a number of recommendations prescribing caution when conducting transactions with cryptocurrency [8]. The Central Bank of India warns users, holders and traders about the risk associated with these assets and clarifies that it does not grant licenses or permits to any legal entity or company to carry out operations with cryptocurrency [9]. On April 6, 2018, the Central Bank of India published a circular prohibiting banks and other financial institutions from conducting cryptocurrency transactions, which stipulated that due to the risks associated with these risks, it was decided that entities regulated by the Central Bank of India should not provide services to assist any individual or legal entity involved in the circulation of cryptocurrencies. Such services include account management, registration, trading, settlements, clearing, providing loans secured by cryptocurrencies, accepting them as collateral, opening accounts of exchanges dealing with them, and transferring/receiving money on accounts related to the purchase/sale of cryptocurrencies [10]. Moreover, the Central Bank of India has stated that registered organizations that already provide such services must terminate the relationship within three months from the date of this circular. However, the Supreme Court of India overturned the circular of the Central Bank of 2018, prohibiting banks from dealing, including with cryptocurrency exchanges. The court pointed out that the general ban was disproportionate and that the cryptocurrency did not cause any visible damage to banks regulated by the Central Bank of India [11]. The collection, administration, collection and reimbursement of income tax in India is regulated by the Income Tax Act of 1961.[12] The Income Tax Department is a government agency headed by the Central Direct Tax Board and part of the Revenue Department of the Ministry of Finance, responsible for collecting direct taxes. The tax authorities have not issued clarifications on the taxation of cryptocurrencies and mining-related activities. Despite the lack of clarity regarding the legality and tax regime of cryptocurrencies, cryptocurrencies are subject to taxation. The legal regulation of taxation of transactions from the turnover of cryptocurrencies in India proceeds from the general provisions of tax legislation, so in order to determine the tax base, it is necessary to analyze the nature and method of accrual of cryptocurrency to the taxpayer. If a cryptocurrency is purchased as a long-term investment, then capital gains tax is applied to it upon sale. If the cryptocurrency is held as a commodity stock in the ordinary course of business, then any income will be considered income from entrepreneurial activity, which is subject to income tax. The storage period for classification as a long-term or short-term fixed asset is 12 months [13]. Legal regulation of taxation there are no special technical operations peculiar exclusively to cryptocurrency, such as mining and staking. The general provisions of tax regulation apply to the income from cryptocurrencies obtained by this method [14]. However, there is a legal conflict in Indian law arising from the inability to estimate the value of the originally acquired asset as a result of mining or staking. According to the tax legislation of India, it is impossible to calculate the tax on the acquired asset if there is no purchase price, and therefore only the income received from the sale of cryptocurrencies obtained as a result of mining is subject to taxation. This mechanism of tax calculation exists in connection with the precedent Decision of the Supreme Court of India in the case of B.S. Srinivasa Shetty [15]. Consequently, no capital gains tax will be levied on Bitcoin mining.
In 2018, the government of India also considered the introduction of a tax on goods and services provided for cryptocurrency trading, which include mining as a service and the miner's obligation to pay tax if he performs mining for a third party and receives remuneration, and if the remuneration value exceeds 20 lakh rupees, such miners According to the proposed draft law, they will have to obtain a license from the Central Bank of India [16]. A law based on this proposal has not been adopted at the moment. In the Russian Federation, Bill No. 127303-8 "On mining in the Russian Federation" was rejected, but it offered an independent version of the definition of the concept of "mining". The proposed version of the definition of mining, in general, reflects the importance of this operation for maintaining the functioning of the turnover of cryptocurrencies. This definition indicates that miners carry out paid activities to maintain the turnover of cryptocurrencies in exchange for the received cryptocurrency, in connection with this conclusion, it can be assumed that the received cryptocurrency will be recognized as income for tax purposes at the time of crediting the cryptocurrency to the miner's account. The issue of taxation of income of organizations and individuals providing mining services for third parties has not been considered in detail, but in fact, organizations engaged in this type of activity exist in the Russian Federation. The Republic of India does not have a special tax and legal regulation of the turnover of cryptocurrencies and tokens, unlike the Russian Federation, where not only the CFA Law has been adopted, but also tax and legal regulation has been introduced in terms of the turnover of tokens. However, it should be recognized that there are no draft laws in the Russian Federation aimed at introducing legal regulation of taxation of the activities of persons providing services to participants in the cryptocurrency turnover market. The legal regulation of the activities of this group of persons is especially relevant, since it is carried out not within the framework of a distributed registry system, but through controlled payment systems.
References
1. Federal Law No. 324-FZ of 14.07.2022 "On Amendments to Part Two of the Tax Code of the Russian Federation";
2. Federal Law No. 259-FZ dated 31.07.2020 "On Digital Financial Assets, Digital Currency and Amendments to Certain Legislative Acts of the Russian Federation";
3. P. Suchetana Ray, Govt Plans to Bring in Law to Regulate Cryptocurrency Trade, Forms Panel, Hindustan Times, URL: https://perma.cc/6HLK-G9LD (date of application: 31.01.2023);
4. Dep't of Econ. Aff., Ministry of Fin., Report of the Committee to Propose Specific Actions to Be Taken in Relation to Virtual Currencies, URL: https://perma.cc/4HTG-L2X7 (accessed: 01/31/2023);
5. Press Release, Dep't of Econ. Aff., Ministry of Fin., Press Release on Report of the Committee on Virtual Currencies, URL: https://perma.cc/PM5F-E2L5 (accessed: 01/31/2023);
6. Draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019, PRS Legis. Res., URL: https://perma.cc/4SGZ-YRW6 (accessed: 01/31/2023);
7. Vivina Vishwanathan, Bitcoin Regulations in India, Livemint, URL: https://perma.cc/527R-43SG (accessed: 01/31/2023);
8. Press Release, RBI, Reserve Bank Cautions Regarding Risk of Virtual Currencies Including Bitcoins, URL: https://perma.cc/B4TK-TL5U (accessed: 01/31/2023);
9. Vivina Vishwanathan, Bitcoin Regulations in India, Livemint, URL: https://perma.cc/527R-43SG (accessed: 01/31/2023);
10. Press Release, RBI, Prohibition on Dealing in Virtual Currencies (VCs), URL: https://perma.cc/EFW3-HCXG (accessed: 01/31/2023);
11. Charles Kerrigan et al., Supreme Court of India Lifts Ban on Cryptocurrency Exchanges, CMS, URL: https://perma.cc/C4D3-7YRL (accessed: 01/31/2023);
12. Income Tax Act, 1961, URL: https://perma.cc/9A7M-NURR (accessed: 01/31/2023);
13. Samarth Chaudhari, Taxation as a Form of Regulating Cryptocurrencies in India, IndiaCorpLaw, URL: https://perma.cc/4NS8-42JR (accessed: 01/31/2023);
14. Taxation on Crypto Currencies In 2020, CA Mitesh & Assocs., URL: https://perma.cc/58ZG-ZH39 (accessed: 01/31/2023);
15. CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294/5 Taxman 1/21 CTR 138 (SC) // URL: itatonline.org/digest/cit-v-b-c-srinivasa-setty-1981-128-itr-294-5-taxman-1-21-ctr-138-sc / (accessed: 01/31/2023);
16. Nikunj Ohri, India Mulls GST on Trading of Virtual Currencies, Bloomberg Quint, URL: https://perma.cc/9YXZ-7EDV (accessed: 31.01.2023)
Peer Review
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A REVIEW of an article on the topic "Legal regulation of taxation of cryptocurrency turnover: a comparative legal study of the tax and legal regulation of the Republic of India and the Russian Federation". The subject of the study. The article proposed for review is devoted to the legal regulation of "... taxation of the turnover of cryptocurrencies: a comparative legal study of the tax and legal regulation of the Republic of India and the Russian Federation". The author has chosen a special subject of research: the proposed issues are investigated from the point of view of tax, international law of Russia and India, while the author notes that "the CFA enshrines the regulatory concept of a token, a derivative instrument based on distributed ledger technology, but not foreign exchange. Consequently, there is no legal regulation of taxation in the Russian Federation." The NPA of Russia and India, draft laws related to the purpose of the study are being studied. A certain amount of scientific literature on the stated issues is also studied and summarized (mainly foreign), analysis and discussion with these opposing authors are present. However, there are Russian works that also describe this problem. At the same time, the author notes: "Based on the provisions of the Tax Code of the Russian Federation, persons involved in the turnover of cryptocurrencies have an obligation to pay tax when conducting transactions with cryptocurrency in any case." Research methodology. The purpose of the study is determined by the title and content of the work: "... the introduction of this law confirmed the legal status of the token and, as a result, became the basis for calculating and paying taxes on transactions made with tokens, in terms of taxation of income received from the turnover of cryptocurrencies, the issue remains debatable, since the concept of "digital currency" is not identical to the scientific and technical concept cryptocurrency" (referring to Federal Law No. 259-FZ dated 07/31/2020), "On April 6, 2018, the Central Bank of India published a circular prohibiting banks and other financial institutions from conducting transactions with cryptocurrency, ... that entities regulated by the Central Bank of India should not provide services to assist any individual or legal entity involved in the turnover cryptocurrencies". They can be designated as the consideration and resolution of certain problematic aspects related to the above-mentioned issues and the use of certain experience. Based on the set goals and objectives, the author has chosen a certain methodological basis for the study. The author uses a set of private scientific, special legal methods of cognition. In particular, the methods of analysis and synthesis made it possible to generalize approaches to the proposed topic and influenced the author's conclusions. The most important role was played by special legal methods. In particular, the author used formal legal and comparative legal methods, which made it possible to analyze and interpret the norms of acts of Russian and Indian legislation and compare various documents (mainly draft laws). In particular, the following conclusions are drawn: "... The Supreme Court of India has canceled the circular of the Central Bank of 2018, prohibiting banks from dealing, including with cryptocurrency exchanges. The court pointed out that the general ban was disproportionate and that the cryptocurrency did not cause any visible damage to banks," "... to determine the tax base, it is necessary to analyze the nature and method of accrual of cryptocurrency to the taxpayer," etc. Thus, the methodology chosen by the author is fully adequate to the purpose of the article, allows you to study many aspects of the topic. The relevance of the stated issues is beyond doubt. This topic is important in India and Russia, from a legal point of view, the work proposed by the author can be considered relevant, namely, he notes "The tax authorities have not issued clarifications on the taxation of cryptocurrencies and mining-related activities. Despite the lack of clarity regarding the legality and tax regime of cryptocurrencies, cryptocurrencies are subject to taxation." And in fact, an analysis of the opponents' work should follow here, and it follows and the author shows the ability to master the material. Thus, scientific research in the proposed field is only to be welcomed. Scientific novelty. The scientific novelty of the proposed article is beyond doubt. It is expressed in the specific scientific conclusions of the author. Among them, for example, is this: "... in the Russian Federation there are no draft laws aimed at introducing legal regulation of taxation of the activities of persons providing services to participants in the cryptocurrency turnover market." As can be seen, these and other "theoretical" conclusions can be used in further research. Thus, the materials of the article as presented may be of interest to the scientific community. Style, structure, content. The subject of the article corresponds to the specialization of the journal "Law and Politics", as it is devoted to the legal regulation of "... taxation of cryptocurrency turnover: a comparative legal study of the tax and legal regulation of the Republic of India and the Russian Federation". The article contains an analyst on the scientific works of the opponents, so the author notes that a question close to this topic has already been raised and the author uses their materials, discusses with opponents. The content of the article corresponds to the title, since the author considered the stated problems and achieved the goal of his research. The quality of the presentation of the study and its results should be recognized as improved. The subject, objectives, methodology, research results, and scientific novelty directly follow from the text of the article. The design of the work meets the requirements for this kind of work. No significant violations of these requirements were found, except for numerous grammatical descriptions of "includes", "implements", etc. The bibliography is quite complete, contains mainly foreign publications (there are no Russian ones), acts and documents to which the author refers. This allows the author to correctly identify problems and put them up for discussion. The quality of the literature presented and used should be highly appreciated. However, the presence of additional Russian scientific literature would have shown even greater validity of the author's conclusions, and perhaps would have influenced the author's conclusions. The works of the above authors correspond to the research topic, have a sign of sufficiency, and contribute to the disclosure of many aspects of the topic. Appeal to opponents. The author conducted a serious analysis of the current state of the problem under study. The author describes the opponents' different points of view on the problem, argues for a more correct position in his opinion, based on the work of opponents, and offers solutions to problems. Conclusions, the interest of the readership. The conclusions are logical, specific "The Republic of India does not have a special tax and legal regulation of the turnover of cryptocurrencies and tokens, unlike the Russian Federation, where not only the CFA Law was adopted, but also tax and legal regulation regarding the turnover of tokens was introduced", etc. The article in this form may be of interest to the readership in terms of the systematic positions of the author in relation to the issues stated in the article. Based on the above, summing up all the positive and negative sides of the article, I recommend publishing it, taking into account the comments.
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